Ahead of the BnetZa Advisory Board meeting scheduled to be held at the end of September, 24 telecommunication operators iincluding 1&1 have published a report criticizing the weak competition in Germany and want access to competitors’ 5G network.
“As a leading economic nation, Germany cannot afford to leave large parts of digitalization to the oligopoly of the three largest European network operators,” said Dommermuth.
Dommermuth wants “fair access to the necessary frequency spectrum - without being slowed down in favor of the established operators.”
Part of the Advisory Board’s meeting agenda will be to decide compulsary opening up of 5G networks, known as service provider obligation.
In the most recent spectrum allocation, service provider obligation was waived though in the previous license auctions, service providers were obliged to allow their competitors access to the networks at a fair rental value.
BNetZa considers extending usage rights for spectrum in the bands of 800 MHz, 1 800 MHz and 2 600 MHz that are due to expire in 2026.
BNetZa wants to reasign these frequencies five years later together with frequencies due to expire in 2033.
The extended usage rights will carry obligations which include providing coverage of at least 100 Mbps for at least 98% of households in sparsely populated areas, provision of coverage with a transmission rate of at least 100 Mbps for all major roads and coverage with at least 50 Mbps for all minor roads and inland waterways, and “national roaming in the form of a negotiation requirement.”
Comments on this interim decision should be submitted by November 6, 2023.
In a position paper, the Federal Cartel Office opposed the possible extension of frequency (800 MHz, 1,800 MHz and 2,600 MHz) usage rights, citing such extension will negatively affect competition by limiting 1&1’s network expansion.
“This means that 1&1 would not only remain extremely dependent on national roaming services from other network operators during this period. Investments already made in infrastructure would also be devalued, and further network expansion without its own frequencies would be economically pointless,” the statement said.
The Cartel Office seems pleased with 1&1’s network progress.
“Overall, from our point of view, it is pleasing that the intended 1&1’s network launch has become increasingly more concrete since the frequency was awarded in 2019, despite generally difficult economic circumstances and delays,” the statement pointed out.
However, its position is secondary, meaning the Network Agency has the final say though its opinions will be given weight.
The Monopolis Commission wants the network frequencies to be extended by a maximum of three years saying an extension by five years as proposed by the Federal Network Agency would be a “major disadvantage” for 1&1.
To compensate for the disadvantage associated with this three year extension, the Monopolis Commission recommends that the three established operators be obliged to grant 1&1 access to their network on a non-discriminatory basis and that 1&1’s concerns be “taken into account.”
It’s good that two major advisory bodies have come out to defend 1&1 in the spectrum allocation. That means 1&1 stands to get a fair deal on the allocation.
Citing a study conducted by Aetha Consulting, 1&1 says there is adequate spectrum for the operation of the four networks and wants it to be fairly distributed.
“All low-band frequencies in particular are in the hands of the incumbent network operators. Only one-third of the low-band frequencies will become free at the end of 2025 when the 800 MHz frequencies become available. In effect, Deutsche Telekom, Vodafone and Telefónica will in any case have unrestricted access to the other two-thirds in the 700 and 900 MHz ranges until 2034 as a minimum. If 1&1 were to be excluded from the frequency allocation, we would be blocked for many years and would not be able to operate our network competitively,” Ralph Dommermuth said. “If we are treated fairly, we are also open to alternative procedures for frequency allocation – including the extension of frequency rights."
1&1 suggests inclusion of the less used 700 and 900 MHz in the award process to eliminate expensive bidding wars.
1&1 seems to want the three incumbent operators to relinquish 20 MHz of the low-band frequencies to them.
According to a report by the Federal Network Agency, there is effective competition in the market.
That means there is little argument for the so-called service privider obligation, which reguires the major mobile operators to rent their network to small operators.
A consultation paper commissioned by 1&1 and published by Professor Di Fabio, former justice on the Federal Constitutional Court established that extension of frequency allocation would be unconstitutional.
“The auctioning of the first 5G frequencies to a new entrant in 2019 led to additional regulatory responsibility. Extending the frequency use rights of the established network operators without taking 1&1 into consideration as a new entrant would violate the principles of the protection of legitimate expectations and equality and would be unconstitutional from several points of view”, noted Professor Udo Di Fabio.
I:10
Europe’s leading TelCo CEOs came together on February 27 at MWC24 to demand a “New Deal” for the Telecommunications Industry.
They argue that the telecommunications industry in Europe is falling behind and needs far-reaching regulatory changes.
Allow more consolidation in the TelCo Industry. Building four 5G Networks in parallel is not efficient.
Change Policy on Spectrum. No one wants to invest without longterm security.
Level the playing field. Giants from the U.S. cannot have regulatory advantages.
According to the presenter, it had never happened before that all major CEOs, who are usually rivals, came together to appeal for regulatory changes.
Assessment
In my 8+ years of investing, I have never seen all the major CEOs of one industry demand regulatory changes in a joint, well-made presentation. Therefore, I think the process is remarkable.
Crucially, it appears that regulators are listening. This can be seen by increasing consolidations, a possible extension of frequencies in Germany and EU commissioner for Internal Markets Thierry Breton calling for spectrum allocations based on commitments of fast network rollouts and not auctions.
Yes the process is remarkable but makes 1&1 looks like a black sheep. Those demands make them look like they are ganging up against 1&1. First 1&1 is building an open RAN network which is different from what those four have. Secondly, spectrum extension will not be good for 1&1 unless they are open for frequency sharing. But Della Valle also calls for fairness, which is a good sign for the industry.
It is easy to see why European telcos invest less while having less long-term security and that building an infrastructure four times is not economic, especially given the large amount of antennas required for 5G.
Interestingly enough, they talked about building Open Ran Networks in the presentation. I saw that you covered the state of Open Ran Networks in this good overview and it would be awesome to get some updates. I would be particularly interested to understand if the industry is convinced by now that Open Ran is the future and it is almost certain that the networks of the future will Open Ran based. (This would make the infrastructure of 1&1 more valuable in case 1&1 cannot build their own network and need to sell it)
My take is that established companies are probably not open to share frequencies because that would allow a competitor to build their own network. Instead they could be open to allow a competitor access to their own network via national roaming/MVNO contracts. That is at least in line with the 1&1 Vodafone Deal and what Della Valle said during the event.
Overall I believe that the likelihood that 1&1 can never build it’s own network is growing. That does not have to be too bad for it though, as long as they get good access to other networks.
So if 1&1 fails to get the low-band spectrum and as a result decide to cease building its own network, won’t that limit its growth given it will depend on others for survival? Will it makes sense to continue having a position in it or are you mostly invested in it because of valuations? I think deciding to stop building the network will also result in huge costs such as penalties to BnetzA and maybe contractual partners.
Yes, It would limit their growth potential and make them more dependent.
On the other hand, it would provide a lot of clarity and make the investment case easier.
Building their own network was never an easy or highly profitable endeavor but from what I heard they have been partially forced to this course of action due to pricing disputes with Telefonica and no certainty that there would have been an extension of the old Telefonica contract beyond 2030.
That problem appears to be solved by now with the new Vodafone contract and in case they cannot get the required frequency and the BNetzA waives their obligations on network construction 1&1 might reconsider their current strategy.
From an investment perspective I would still be interested in being an investor in this case due to attractive valuations. I would even think that markets would like 1&1 to go this route if it can be done in a good way without major downsides as it requires way less capital to be invested and is less risky.
Looks like major bluefield operators are now transitioning from testing Open RAN to actually launching it. Also, they sound more confident on Open RAN today than in the past year or so. However, it seems that they are currently deploying it at a small scale. But I think that was expected since they can’t just replace their legacy networks with Open RAN. They have to do it step by step as their old network degrades. Additionally, there are old deals preventing them from significantly moving to Open RAN. However, new contracts for the next modernization cycle are expected to pay off in the second half of 2025 [1]. Here are the recent Open RAN developments:
Omdia expected global RAN spending to decline by 11% y/y to $40.2 billion in 2023 [2].
In its 2024 results (year ended December 2023), NEC cut its 5G revenue (outside Japan) for the 2026 fiscal year to $210 million from $580 million “due to delay of international open RAN market start up” [3].
AT&T said five months ago that it will shift 70% of of its wireless network traffic flowing through its open RAN platform by the end of 2026. Erickson will lead the transition in a 5-year contract amounting to around $14 billion [4].
Vodafone recently said its plan to have 30% of its masts in Europe be based on Open RAN by 2030 hasn’t changed and that it has started commercial deployment of Open RAN in 30 cities in Romania [5].
“We’ve proven that Open RAN’s performance is either on a par or exceeds that of the legacy equipment in most measurements.This is just the start,” said Alberto Ripepi, Chief Network Officer, Vodafone [6].
Last week O2 Germany switched on its Open RAN commercial site in Bavaria, Germany and plans to add seven more sites in the coming months [7].
“Open RAN is a building block that can help us automate our network more , install new updates more quickly and use network components more flexibly,” said Mallik Rao, Chief Technology & Information Officer at O 2 Telefónica.
Last year December, Deutsche Telecom said its first commercial Open RAN antennas in the city of Neubrandenburg were operational and it plans to add more than 3,000 ORAN-compatible antenna sites by the end of 2026 [8].
“Open RAN increases the choice of manufacturers and therefore our flexibility. The open access network enables more automation. And makes our networks even more resilient. This benefits the people that our mobile network connects,” Claudia Nemat, Board Member for Technology & Innovation said.
Yeah, in the past, the market has cheered reports that might force 1&1 to pull back on its network buildout. But in my opinion, depending on a third party makes the business uncertain. For instance, if Vodafone Germany (due to its current problems) is acquired by another firm, problems that 1&1 encountered with Telefonica could repeat itself, especially given that Della Valle is said to have been the brain behind the deal and not people on the ground.
In its consultation draft report, BnetzA wants to extend frequency usage rights by five years and provide an obligation for the established operators to share their frequencies below 1 GHz with 1&1, order a negotiation bid on national roaming in favor of 1&1 and provide an obligation for the extension of existing spectrum leases.
Details
“Each frequency allocation holder in the 800 MHz band is obligated, as of January 1, 2026, to implement cooperative, shared usage of equivalent radio frequencies below 1 GHz for 1&1 Mobilfunk GmbH, corresponding to a minimum scope of 2 x 5 MHz (paired), in order to improve the existing coverage of 1&1 Mobilfunk GmbH. After the issuance of this decision, each allocation holder must, upon specific request within three months, provide an offer to 1&1 Mobilfunk GmbH under fair conditions.
If an allocation holder implements cooperative, shared usage in the aforementioned scope in an expansion area, this shall be credited to the other allocation holders for this area,” the report reads.
“Each frequency allocation holder is required to negotiate with 1&1 Mobilfunk GmbH for the shared use of existing nationwide networks (so-called roaming) upon request. The negotiations should be fair. As long as an allocation holder grants national roaming to 1&1 Mobilfunk GmbH, this obligation is considered fulfilled.
If, as of January 1, 2026, 1&1 Mobilfunk GmbH does not grant national roaming upon request, the President’s Chamber reserves the right to order national roaming.”
“Telefónica Germany GmbH & Co. OHG is obligated, as of January 1, 2026, to continue the existing allocation in the 2,600 MHz band for the duration of the extension upon request from 1&1 Mobilfunk GmbH, with frequencies totaling 2 x 10 MHz (paired).”
“We are open to a co-operative solution. It is important that we can utilise a sufficiently large amount of frequency at market conditions in order to adequately supply our more than 12 million customers,” said Ralph Dommermuth.
Telefonica Germany also welcomed the decision but said it would have been appropriate to extend the usage rights by 8 years.
Details
“The Federal Network Agency is making a good decision for the country and is setting the course for a promising digital future for Germany.” “For the planned extension, we as network operators are shouldering additional expansion requirements over a short period of time, which represent a real effort. A five-year extension is a step in the right direction to make Germany the European champion in 5G. A more effective approach in this direction would be to extend the terms of frequency usage by eight years. This would have enabled even better planning and further expansion impulses for Germany’s digital infrastructure,” said Markus Haas, CEO O 2 Telefónica.
Deutsche Telecom welcome the extension but said the costs are similarly high while criticizing the authority for offering 1&1 a free pass.
Details
“The scope of this requirement seems to be unclear to the authority. At the same time, the authority is already assuming an extension fee of 800 million euros for just five years,” Telekom spokeswoman Nicole Schmidt told Golem.de. “Despite repeated disregard of all requirements and promises, 1&1 is to receive additional frequencies that are already used by millions of customers. The Federal Network Agency is supporting a newcomer who is to be viewed as unreliable according to the TKG standard and therefore should not receive any further frequencies.”
Analyst Akhil Dattani of JP Morgan said the draft report is clearly positive for 1&1, neutral for Telefonica and Deutsche Telecom and presents risks for Vodafone. “But the devil is in the details,” he said.
I couldn’t find more information on his reasoning. But my guess is that given Vodafone will be required to share the 800MHz with 1&1, it may remain with an insufficient amount to provide quality indoor coverage for its customers and that of 1&1? A study by Aetha concluded that the 800MHz is heavily utilized by the three established operators.
