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German auction unlikely to see high prices – analysis

Connectivity BusinessbyConnectivity Business
May 27, 2015
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Germany has kicked off a bumper auction of low-frequency spectrum, yet despite the airwaves being highly sought after, experts do not foresee operators paying high prices.
The Bundesnetzagetur has made spectrum in the 700 MHz, 900 MHz, 1800 MHz and 1.5…

Germany has kicked off a bumper auction of low-frequency spectrum, yet despite the airwaves being highly sought after, experts do not foresee operators paying high prices.

The Bundesnetzagetur has made spectrum in the 700 MHz, 900 MHz, 1800 MHz and 1.5 GHz bands available but due to consolidation in the market there are only three operators to bid on the spectrum.

Amit Nagpal, a partner at Aetha Consulting, and Stefan Zehle, CEO of Coleago Consulting – who have both advised operators around the world on auctions – have both told TelecomFinance that the smaller number of telcos will lead to lower prices being paid for spectrum.

Zehle suggested the prices paid would be lower than those in the country’s first 4G auction in 2010 because E-Plus, the challenger in the market at the time, has subsequently been snapped up by Telefonica Deutschland, reducing the number of network operators to three. Deutsche Telekom and Vodafone are the other two bidders.

Nagpal pointed even further back to Germany’s sale of 3G spectrum in 2000. That auction saw six parties compete for licences and raised more than €50bn. He suggested that in-market consolidation across Europe could see lower spectrum prices become commonplace, and argued that less competition for airwaves, and thus lower prices, was one of the drivers for mergers in the sector.

Zehle noted that the Bundesnetzagetur had raised the reserve price per block of spectrum to adapt to the new market structure, from €2.5m in 2010 to €75m for this year’s sale, but said t the amount was still very moderate compared to numbers seen elsewhere.

Lower spectrum prices was the “new reality” Zehle said, but added the caveat that it would depend on the policy objective of the regulator. Germany’s policy does not focus on revenue generation, but rather on providing broad mobile broadband coverage, giving operators certainty, and maintaining network-based competition.

In countries where the government places an emphasis on maximising auction proceeds but the number of operators is being reduced due to M&A, Zehle predicted that reserve prices would increase to pick up the shortfall.

In addition to the reduced number of bidders, Nagpal also said that the simultaneous multi-round structure of the auction would lead to comparatively lower prices being paid.

“The transparent nature of the process makes it easy for operators to accommodate each other,” Nagpal said, pointing out that as the operators can see how much is being offered, there isn’t the same need to bid higher as there is in a sealed envelope format.

The reserve price for all the spectrum was set at €1.25bn. After 22 rounds of bidding, this had risen to just over €1.8bn, and Nagpal expected total proceeds to reach between €3bn and €5bn, whereas an equivalent four-player auction could be expected to generate between €10bn and €12bn.

Zehle suggested yet lower, estimating that proceeds could be between €2bn and €2.5bn.

Tags: Deutsche TelekomE-PlusTelefonica Deutschland (O2 Germany)Vodafone
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