Spectrum Regulation Research

Originally published June, 2010 Revised September, 2010

Outcomes of Germanys Mega Spectrum Auction

Germanys auction of 358.8 MHz of spectrum across 4 bands 800 MHz, 1800 MHZ, 2100 MHz and 2.5 GHz concluded in May 2010. As a result, the ground is set for a new competitive and technology landscape to emerge nationally, while other nations keenly watch this bellwether event and its outcomes. Exhibit 1 summarizes the spectrum holdings of major mobile operators in Germany prior to and following the spectrum auction.

Exhibit 1. Old and new spectrum holdings in Germany

Source: BNetzA and Tolaga Research, 2010.

This Tolaga Research Case Study provides a detailed view of the spectrum distribution in Germany pre and post the mega auction. We assess the new relative positioning of the four mobile operators in Germany Vodafone, T-Mobile, O2 and E-Plus in terms of their spectrum holdings as a result of the new allocations.

I.

Germanys Spectrum Auction Treasure Chest

Germanys mega auction comprised a large amount of spectrum suited to serving both the coverage (800 MHz), and capacity (1800, 2100 and 2500 MHz) requirements of mobile operators. It was also significant as an example of the growing global trend of the simultaneous allocation of spectrum across multiple bands. And, it was a first for Europe in opening up broadcasting spectrum for mobile service provision. Germanys analog to digital switchover was completed in 2008 meaning that the 800 MHz spectrum is unencumbered and available for use now.

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Outcomes of Germanys Mega Spectrum Auction

The 800 MHz licenses carry coverage obligations where operators will be required to focus on improving broadband services in rural markets before they are permitted to service urban areas. Holders of the spectrum will be obliged to follow a staged rollout plan based firstly on areas with 5,000 or less population, followed by those with between 5,000 and 20,000 inhabitants, then those with 20,000 to 50, 000, followed lastly by areas with a population of 50,000 or more. Ninety percent of the population in non-urban areas must be covered before operators can target densely populated areas. The licenses awarded at 2.5 GHz are nationwide. All of the licenses are awarded until December 2025. Exhibit 2 outlines the spectrum on offer and its packaging.

Exhibit 2. Germanys forty-one spectrum blocks for auction

Source: BNetzA and Tolaga Research, 2010.

Spectrum Distribution Pre-Auction

The key spectrum holdings of Germanys four mobile operators are shown in Exhibit 3.

Exhibit 3. Spectrum distribution in Germany prior to the 2010 auction

Source: BNetzA and Tolaga Research, 2010.

Copyright 2010 Tolaga Research

Outcomes of Germanys Mega Spectrum Auction

II.

Auction Outcomes

Exhibit 4 outlines the revised spectrum holdings of the four operators following the auction. In summary: Vodafone acquired an additional 9.9 MHz of paired spectrum at 2100 MHz, along with 20 MHz FDD at 800 MHz, 40 MHz FDD and 25 MHz TDD in the 2.5 GHz band. This total of 94.9 MHz represents 26.4% of the total spectrum on offer. T-Mobile came in on par with Vodafone, acquiring some 95 MHz of spectrum in three of the four of the bands on offer. At 1800 MHz it secured an additional 30 MHz of spectrum. At 800 MHz, TMobile secured 20 MHz. It acquired 40 MHZ FDD in the 2.5 GHz band along with 5 MHz TDD. O2 secured 99.1 MHz including 9.9 MHz of paired spectrum at 2100 MHz. O2 was awarded the total available 2100 MHz TDD spectrum amounting to 19.2 MHz. Twenty MHz was acquired at 800 MHz, along with 40 MHz TDD and 10 MHz FDD at 2.5 GHz. E-Plus picked up 69.8 MHz of spectrum at 1800 MHz (20 MHz), 2100 MHZ (19.8 MHz FDD) and 2.5 GHz (20 MHz FDD, 10 MHz TDD). E-Plus was the only operator to miss out on the sub-1 GHz spectrum available.

Exhibit 4. Spectrum distribution in Germany post the 2010 auction

Source: BNetzA and Tolaga Research, 2010.

Copyright 2010 Tolaga Research

Outcomes of Germanys Mega Spectrum Auction

Auction Proceeds
The auction raised some 4.385 billion euro, an amount well below the 50 billion euro garnered in the UMTS auction conducted in Germany in 2000. The prior auction offered a total of 85 MHz of spectrum 60 MHz FDD and 25 MHz TDD of which, 20 MHz FDD and 10 MHz TDD were subsequently returned to the regulator. The 800 MHz spectrum attracted the highest bids and brought in 3.576 billion euro or close to 82% of total auction proceeds. Revenue generated from the sale of 2.5 GHz spectrum represented 7.8% of the auction earnings with FDD spectrum blocks attracting bids in double the amounts paid for unpaired (TDD) blocks. Exhibit 5 details the payments specific to operators and the bands in which they secured spectrum.

Exhibit 5. Spectrum auction proceeds in Germany

Source: BNetzA and Tolaga Research, 2010.

III.

A Detailed View of the New Spectrum Landscape

Exhibit 6 provides the detail of operator spectrum holdings in Germany following the conclusion of the mega auction. The specific frequency ranges were allocated per operator on an abstract basis, prior to the formal award of spectrum in August 2010. Though not part of the recent allocation, the 900 MHz band assignments are included in the Exhibit 6 profile. Irrespective of the recent auction awards, spectrum in the 900 MHz and 1800 MHz ranges is unequally distributed and not all holdings are contiguous. Current assignments at 900 MHz are not all suited to 5 MHz channel size required for UMTS. The 2G and UMTS licenses have been harmonized to expire in 2016 and 2010 respectively. In October 2009, BNetzA resolved to allow flexible use of 900 and 1800 MHz spectrum on request. It will not redistribute spectrum within the bands in association with permitting flexibility. Instead, the regulator envisages redistribution after the current licenses expire in 2017. The newly assigned spectrum at 1800 MHz can be used flexibly across technologies, as can all of the spectrum released in the 2010 auction.

Copyright 2010 Tolaga Research

Outcomes of Germanys Mega Spectrum Auction

Exhibit 6. Abstract spectrum holdings in Germany, May 2010

Source: BNetzA and Tolaga Research, 2010.

As noted above, formal award of spectrum to the auction winners took place in August 2010. On August 30, BNetzA published the final frequency allocations per operator. After the auction closed in May, the operators were given the opportunity to negotiate frequency usage rights in different parts of the bands allocated. Industry agreement was not forthcoming, leading to assignment of specific frequency lots by the regulator. Exhibit 7 provides the final operator allocations as determined by BNetzA. There is a change in the specific 800 MHz operator assignments, while the most notable reorganization is in the 2.5 GHz band where BNetzA has prudently allocated the spectrum in contingent blocks per operator. This was not the case with the abstract allotments in the band at the close of the auction as reflected in Exhibit 6 above.

Copyright 2010 Tolaga Research

Outcomes of Germanys Mega Spectrum Auction

Exhibit 7. Current spectrum holdings in Germany, August 2010

Source: BNetzA and Tolaga Research, 2010.

Pending Review of Competition Post the Auction

At 800 MHz, the Federal Network Agency (BNetzA) imposed caps on the amount of spectrum which a single operator could obtain. For Vodafone and T-Mobile the cap was set at 2 x 10 MHz, while E-Plus and O2 the cap was set at 2 x 15 MHz. Fearing lock out from access to the band, the latter two smaller operators brought claim against the caps. The claim was denied by the Administrative Court of Cologne allowing the auction to proceed in April 2010 and conclude in May 2010. Nonetheless, BNetzA is separately directed by the European Commission to review the state of mobile market competition 3months after the auction and to adjust spectrum allocations as necessary based on its findings. And, the E-Plus/O2 claim can be appealed to the Federal Administrative Court. Tolaga Research is currently modeling the impact of the German auction on the competitive positioning of the mobile players. The results of this analysis will be published in the coming months.

Copyright 2010 Tolaga Research

Outcomes of Germanys Mega Spectrum Auction

About Tolaga Research

Tolaga Research was founded in 2009 by industry analyst veterans, and modeling experts led by Phil Marshall, who previously headed Yankee Groups technology research. Tolaga offers an integr ated research solution for the mobile industry that includes modeling, research, consulting, analyst interaction and an extensive regulatory spectrum database. Tolaga has developed a unique approach for research and analysis. By leveraging sophisticated modeling techniques, detailed market data and analyst expertise, Tolaga provides in-depth insight and actionable advice for the wireless mobile marketplace. Its integrated research platform provides unparalleled depth and transparency so that clients can confidently analyze key market dynamics, gain insights into granular global regulatory and network data, and analyze strategies to profit from the mobile broadband marketplace.

Tolagas integrated research solution

Source: Tolaga Research, 2010.

Tolaga Research has a variety of databases and advanced modeling solutions which form the quantitative basis for its published research. Notable examples include: See also: Mobile Broadband and 4G Spectrum Allocation Scenarios in the United Kingdom, Tolaga Research Case Study, June 2010 Mobile Broadband and 4G Spectrum Regulation Trends, Tolaga Research Report, May 2010 The Emergence of Multi-band Spectrum Auctions, Tolaga Research Insight, May 2010 An extensive and global radio spectrum database which includes detailed information on national spectrum licenses and service provider holdings; see Tolaga Spectrum Data, and Advanced simulation models to determine the impact of differing spectrum allocation scenarios on mobile Internet business models; see Tolaga Modeling.

For more information: Contact: admin@tolaga.com Tolaga Research: Riverside Center, 275 Grove Street Suite 2-400 Newton, Massachusetts 02466 United States of America

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