In their Q1 2024 earnings call, Deutsche Telecom said they will do everything to defend their low-band spectrum since their customers need it.
“We will do everything here on our side. To defend our position on this low band spectrum. It’s very clear because our customers are using it, and our leadership both on capacity and speed, is as well based on this low band spectrum, which is part of the whole story, which we are banking for,” CEO Tim Höttges said.
“My customers are using the spectrum every minute while we are sitting here. And I can tell you it’s our duty to defend let’s say, the quality and it’s our duty to defend , let’s say, the service obligation, which we have, towards our customers. And that is, let’s say, going to be a very tough discussion, which is coming over the next week.”
Tim added that he expects the proposal for an extension to move forward and he is hopeful that they will find a common ground for the pressing issues.
“Look, the discussion about going into an auction at that point in time, I think it is now less of the way forward. I think it is more the way forward now to make a proper consultation of that paper and find a pragmatic approach to how it’s the aim of the political leadership behind this plan,” he responded an analyst who asked whether they will rather choose an auction over the proposal to share the low-band spectrum with 1&1.
I=2
German leaders will decide soon on whether or not to force telecom operators to get rid of Chinese equipment, people familiar with the matter said.
Deutsche Telecom and Telefonica are confident of low-band spectrum extension
In their recent earnings call, Deutsche Telecom pointed out that a low-band spectrum extension is likely but that they are unwilling to share their low-band spectrum with 1&1.
“I think nothing has changed. We expect there’s going to be a prolongation for about four, five years at minimum. I think it’s unlikely it’s going to become eight years. We always said there’s [indiscernible] 101 with regard to low-band spectrum that we are out of this negotiation because we are not willing to give up a fully utilized spectrum band on our side,” CFO Christian Illek said.
“1&1 has communicated their numbers today. I think they said they have now 546 sites pretty much active, according to the target of 1,000 by the end of 2022. I don’t have any privileged insight into the discussion with BNetzA, but I assume it’s not helpful because they’re still trailing behind their end of 2022 target.”
Telefonica said in their earnings call that the position from the German government with regards to spectrum extension was finalized.
“The spectrum extension was not only already signaled by the regulator, but the position from the German government and its vendors was finalized,” COO Angel Vila said.
I=7 Administrative court says the 2019 5G auction was unlawful
A Koln administrative court has ruled that the 2019 frequency auction was unlawful since it did not provided the so-called service provider obligation.
Freenet and EWE Tel had gone to court to challenge the auction.
Though the administrative court has not allowed an appeal, the Federal Network Agency could obtain permission to appeal to the Federal Administrative Court.
“Against the backdrop of the ongoing frequency allocation procedure, we are also counting on the Federal Network Agency to follow the court’s request in a timely manner and replace the negotiation requirement, which has been burnt since today at the latest, with effective competition regulation,” Freenet said.
“We are watching the political influence on important market decisions of the Federal Network Agency with great concern,” says VATM Managing Director Frederic Ufer.
“The ruling is a resounding slap in the face for the Federal Network Agency! Apparently, the management of this important regulatory authority at the time was biased, prejudiced against measures that promoted competition and anything but independent of political influence. The decision to impose an ineffective negotiation requirement on mobile network operators in 2019 instead of a service provider obligation was therefore not made for objective reasons, but to protect Telekom, Vodafone and Telefónica from unwelcome competition,” says Stephan Albers, Managing Director of BREKO.
Assessment
The ruling will likely benefit 1&1 which is expecting fairness when the BNetZa extends frequency allocation since it creates scrutiny over the regulator.
I=6 The Federal Network Agency is sticking to its plans to extend frequency usage rights by 5 years
The Federal Network Agency is sticking to its plan to extend usage rights for frequencies that expire at the end of 2025 by 5 years.
The authority reiterated that the extension will be accompanied with special arrangements for 1&1.
The authority still doesn’t provide for a service provider obligation but is planning to use a “negotiation agreement” which has slightly been tightened since the last draft paper in 2024.
The statement from the Federal Network Agency said a final decision is currently being prepared.
I=6 Federal Network Agency appeals the 2024 Koln administrative court ruling, reducing chances of reversing the 2019 auction
The Federal Network Agency has filed an appeal against last year’s ruling by the Koln administrative court which declared the 2019 auction as unlawful.
The appeal prevents the Koln ruling from becoming legally binding.
The Koln administrative court ruling had some people saying the 2019 auction could be reversed.
Federal Network Agency extends frequency usage rights by 5 years, provide negotiation requirement for 1&1
The Federal Network Agency has confirmed that it is extending frequency allocation by 5 years.
The extension provides a negotiation requirement for shared use of frequencies between established operators and 1&1.
“The Federal Network Agency has stipulated a negotiation requirement for the so-called cooperative, joint use of frequencies below 1 GHz in favor of 1&1 Mobilfunk GmbH . Wherever 1&1 Mobilfunk GmbH expands its network, the established network operators will in future be required to negotiate with 1&1 to a certain extent regarding the shared use of the crucial frequencies below 1 GHz,” the Federal Network Agency statement reads.
“These negotiations are to be conducted in a non-discriminatory and technology-neutral manner. The Federal Network Agency provides the parties with a benchmark in the form of specific provisions that serve as guidelines for effective negotiations,” said the statement.
1&1 said that if it’s not granted access to the frequencies by January 2026, the Federal Network Agency reserves the right to enforce access, adding that only the three competitors will be at advantage position when it comes to the subsidy. It added that it’s reaching out immediately to established operators in order to avoid unnecessary delays in the negotiations.
“We are confident that this will be achieved and trust in fair offers as well as the support of the Federal Network Agency,” said CEO Ralph Dommermuth.
“However, it should not be forgotten that extending large portions of frequency licences effectively amounts to a one-sided subsidy for our three competitors. This must be offset, at the latest, in the next frequency allocation round with equivalent conditions for us as the fourth network operator, ensuring sustainable competition on a level playing field,” Dommermuth added.
German Broadband Communications Association (Breko) criticized the negotiation agreement, saying the Federal Network Agency should have just introduce service provider obligations.
“Instead of practically useless ‘guard rails’ for the unsuitable negotiation requirement, the authority should have introduced a service provider obligation,” said Sven
Knapp, head of Breko
According to a paper published at Wirtschaftsdienst (Economic Service) in November 2024, the negotiations will likely be tedious and lengthy and could lead to inefficient results. This include the fact that Federal Network Agency has not defined the fair price (hence parties have no incentive to reach an agreement at an early stage), asymmetric bargaining power (1&1 has special power since the frequency extension can be reversed if there is no agreement), and information risks.
The Federal Network Agency says that if there is a dispute between 1&1 and incumbent operators, the ruling chamber will provide a resolution subject to Section 212 of the Telecommunications Act (TGA). § 212 TKG stipulates that the ruling chamber must decide on the dispute within a maximum of four months.
Telefonica welcomed the extension but said it “lacks any factual and legal basis”. Deutsche Telecom said it’s disappointing that there are once again special rules for service providers and MNOs.
According to Tagesspiegel Background, the guard rails introduced to help the likes of 1&1 are now stricter and more specific than in January i.e. it states that demanding excessive price is a violation of the obligation to negotiate and rigid contracts that don’t provide for conditions to renegotiate contradicts the principle of fairness and appropriateness.
Freenet chief commercial officer Rickmann von Platen saidthe guard rails is an improvement of the original negotiation requirement but it doesn’t eliminate all of its short comings. He also notes that while the law provides for disputes to be determine within four months, they have often taken longer.
1&1 shed around 2% following the news but later recoup the losses.
Assessment
The fact that Telefonica and Deutsche Telecom criticized the special rules for 1&1 indicates that they could be reluctant to negotiate. Even though the guard rails appear stricter and more defined, they still lack objective metrics like what constitutes a “fair price”. An offer price that is higher than the one deemed as fair could create negative consequences for the incumbent while a price that is too low will make the process unprofitable. As such, it is highly likely that the incumbent operators could derail the negotiations in order to use the offer price given by the federal agency. Given that the Federal Network Agency will first have to examine the terms of the offer and come up with what they term as fair, the process will likely be lengthy. Eventually 1&1 is likely to get access, but the path is unlikely to be smooth unless the Federal Network Agency intervenes early and decisively, which hasn’t been the case in the past.
Cool thank you. Does it matter for 1&1 that the process could be lengthy or would consequences likely be small as they can use low frequency of Vodafone in the meantime? (Not renting their „own“ low frequency could be a bit more expensive but nevertheless it might only be a smaller short term impact)
Are you confident that prices which will eventually reached will be roughly fair?
Did you use Deep Research for your research? If yes can you link it here?
I suppose you are asking if the consequences of lengthy negotiation will be small given they are already using national roaming from Vodafone? (the negotiation agreement is about getting usage rights from incumbents: Vodafone, Telefonica and Deutsche Telecom).
It’s crucial that 1&1 gets the low-band frequency as soon as possible. The sooner they can get the low-frequency, the earlier they can achieve cost-savings by reducing usage of national roaming. According to 1&1, access to low band is much cheaper than using national roaming. Similarly, 1&1 has a regulatory obligation to achieve 25% and 50% coverage of Germany in 2025 and 2030 respectively. Without the low-band frequency, they will need more antenna sites to achieve this coverage, which is costlier. Also, building antenna sites takes time, as evidenced by delays faced by 1&1. 1&1 already said not getting the low-frequency is a worst-case scenario for them (GPT Deep Research).
The Federal Network Agency is championing for a market-oriented pricing. For instance, they could compute the offer price based on the price that the incumbents are paying for spectrum today. The operators will pay €600m for the 2026-2030 usage, which is significantly lower than the €6.55 billion they paid in 2020. If there were an auction, the price paid by 1&1 could have been significantly higher. In general, the guard rails point to fair pricing, the only problem is that the negotiations might be lengthy.
Ok it is good to hear that the extension of the low spectrum is so cheap, which makes getting access for 1&1 also likely relatively cheap?
Yes, I am talking about the difference in cost between 1&1 paying for national roaming (the low
Spectrum part) or paying for access to low frequency spectrum directly with their towers.
For some reason I would estimate that the difference is not massive (maybe in the low tens of millions on an annualized basis - purely based on gut feel and some of the infos we had in the past on cost savings of 1&1 own network & the fact that 1&1 own network is in such an early stage and they don’t have so many towers anyway). In this case the impact of a delay in the negotiation would be there but not be massive. What is your assessment based on available informations?
In general your end goal is always get to estimates in numbers how much something is affecting a company and how it could be factored into our valuation models.
This will allow you in the long term to determine price targets of stocks and update them according to key developments.