The German auction may not have reached the sky-high prices envisaged for India’s upcoming spectrum sale, but there was still plenty for the country’s MNOs to grumble about – fees totaling €6.5bn ($7.4bn), indicating steady inflation in Europe’s 5G spectrum costs; and further pressures on the business model from coverage targets, a new entrant MNO, and spectrum earmarked for private and industrial use.
The three established operators, Deutsche Telekom (DT), Vodafone and Telefónica O2, said they had been forced to overpay for their licenses, because the regulator introduced new competition into the bidding, and that would impact on their resources to invest in 5G.
Vodafone’s group CEO, Nick Read, said pointedly: “We believe it is important to have a balance between the price paid for spectrum and our strong desire to create an inclusive society through investment in mobile network coverage.” Vodafone Germany paid a total of €1.88bn ($2.1bn) for 90 MHz of spectrum in the core 5G band, 3.6 GHz, plus topped up its 2.1 GHz reserves with an additional 40 MHz. Traditionally the 3G band, some European operators are already eyeing more 2.1 GHz spectrum with a view to refarming it for 5G, and switching off 3G in the coming years (in some cases, earlier than sunsetting 2G, which is more important for ubiquitous coverage and voice).
The licenses run until 2040. Deutsche Telekom acquired the same total amount of spectrum, 130 MHz, as Vodafone, but paid more – a total of €2.17bn ($2.5bn). Earlier this year, DT’s CEO, Tim Hoettges, accused the regulator, BNetza, of putting Germany’s 5G roll-out plans at risk by pursuing short term revenue gains rather than a solid business case for the operators. “An artificial shortage of public resources is being created, which may push up the price,” he said earlier this year at the telco’s annual general meeting. “In the end, there is no money for the build-out.”
Telefónica Deutschland spent a total of €1.42bn ($1.6bn) on 90 MHz of spectrum, acquiring 20 MHz in the 2.1 GHz band and 70 MHz of 3.6 GHz.
The new entrant is 1&1 Drillisch, which became an MVNO thanks to conditions imposed on Telefónica when it acquired E-Plus from KPN, reducing the number of MNOs in Germany to three. Now Drillisch has acquired spectrum of its own – 50 MHz in 3.6 GHz and 20 MHz in 2.1 GHz, spending €1.1bn ($1.2bn), and prompting its share price to leap by 9.4%.
The German finance ministry has promised to invest the auction proceeds in improving the country’s digital infrastructure. But the telcos were not placated. Dirk Wössner, a member of DT’s board of management, said in a statement: “The network roll-out in Germany has suffered a significant setback. Once again, the spectrum in Germany is much more expensive than in other countries … Network operators now lack the money to expand their networks.”
In fact, total takings were similar to those in Italy, but well above it in per MHz/POP terms – and well ahead of fees in earlier major auctions such as the UK’s. Italy raised €6.5bn for 1,275 MHz of spectrum, making a cost of almost €0.09 per MHz/POP in a country of 60m people. Germany auctioned less spectrum (it did not include millimeter wave this time) and has a larger population, of 83m, so its fees worked out at almost €0.19 per MHz/POP. If only the prices in 3.4-3.6 GHz are compared though, Italian operators paid twice as much as their German counterparts. And certainly, the German MNOs were not shelling out anything close to the fees in the 3G auction in 2000, which reached €50bn ($56.6bn, at today’s exchange rate).
Operators in many markets are keen to make the connection between lower spectrum costs and the ability to invest more rapidly and extensively in 5G, and so accelerate the achievement of government socio-economic targets for the technology. Wössner claimed that the auction proceeds equated to the cost of building about 50,000 new mobile sites, closing many white spots.
However, there are also suspicions that operators are using spectrum costs, as well as the uncertainty over whether they will be able to use equipment from Huawei in 5G networks, as excuses to slow down their build-outs. Many MNOs have, publicly or privately, said they are being forced to roll out 5G earlier than the business case justifies, and would prefer to slow down the pace. As always, the case for extensive rural coverage is the hardest to make, but BNetza has insisted that auction winners must commit to providing high speed Internet to 98% of Germany households, and to sharing their networks under a national roaming program designed to eliminate notspots, especially in rural areas.
These were the most unpopular conditions with the MNOs, though they have also been dismayed at the prospect of a new entrant which could be disruptive in the way that Iliad has been in France and Italy – like Iliad, Drillisch’s parent company, United Internet, is a broadband provider, and its home and business fixed lines, plus WiFi, can be used to reduce the cost of infrastructure to support a mobile roll-out. In turn, those reduced costs can enable a new MNO to seize market share by undercutting rivals’ tariffs.
And BNetza also reserved a chunk of spectrum in the 3.7-3.8 GHz band for private enterprises, which the telcos argued is adding to the artificially created shortage of airwaves. That has yet to be sold but several German majors, including BASF, Siemens and Volkswagen, have expressed interest in having spectrum which they could control, ensuring that they – or their partners such as private operators, integrators or even MNOs – roll out networks that are optimally suited to the requirements of their applications.
Despite the qualms of the MNOs, the German regulator has blazed an important trail here, acknowledging that if 5G is to fulfil its promise to support a wide range of specialized vertical industry requirements, it will need a greater variety of service providers. One day, network slicing will enable a few companies to build platforms that support hundreds of differently configured virtual networks, supporting hosts of enterprises and service providers. But that technology is immature, and some industries cannot wait for the operators to invest in those platforms. Having been largely ignored in the way 4G was rolled out, they are keen to assert greater control so that 5G delivers more than just mobile broadband to their workers – it must also support deep indoor penetration even in hostile environments like factories, and must be optimized for any particular set of requirements, whether those include very low latency or high availability or extreme power efficiency or enhanced security.
In the USA, the regulator has set another important precedent with the CBRS shared spectrum system, which is likely to be used by private operators, cablecos and enterprises to support localized and specialized services.
In the absence of a similar spectrum in Europe so far, regulators in this region are watching the German experience, and are being forced to think more creatively about private networks, even in the teeth of opposition from MNOs. Private services are springing up in LTE to meet pent-up enterprise demand, so the genie is out of the bottle even before full 5G arrives, making the cautious conditions of the early 5G auctions look outdated.
In the UK, for instance, the 3.4-3.6 GHz auction missed the opportunity to allocate some spectrum for private enterprise, or for a new entrant which would focus specifically on these new services. DenseAir, a subsidiary of equipment provider Airspan, did bid, with a view to creating a neutral host platform to support businesses underserved by the main macro networks, but it was priced out of the running by the conventional structure of the auction (it has, however, acquired spectrum in other countries for this purpose, including Belgium, Ireland, Portugal and some Asian countries).
Now, UK regulator Ofcom is thinking more laterally about the next mid-band 5G auction, in 3.8-4.2 GHz. The agency unveiled its proposals at last week’s 5G World conference in London, saying it would reserve 390 MHz of spectrum for local coverage and enterprise or campus use. This would enable neutral hosts, private operators or enterprise integrators to build networks for a specific location such as a business park or industrial zone, with specific capabilities for those users. In some circumstances, these ‘sub-nets’ could be combined with a local or cloud packet core and with edge computing.
The scheme would enable organizations to apply for 5G licenses covering a 10MHz chunk of low power spectrum over just 50 square meters, and develop their own network and services, either in partnership with an MNO or possibly with a vendor (as well as Airspan, Nokia is very supportive of new schemes to enable private operators and is offering cloud-based core and connectivity platforms to lower barriers for new entrants in vertical markets). But wily MNOs will see this as an opportunity not a threat, removing the burden of having to cover every building and industrial premises at their own cost, but creating new partners and the ability to ride on these specialized networks to deliver added value services, enabled by their macro networks – end-to-end location awareness, security and blockchain tracking, for instance.
Mansoor Hanif, Ofcom’s CTO and formerly at the UK’s leading MNO, EE, said the proposals would be “revolutionary”, adding: “5G is an opportunity for everyone and we’d like to encourage new entrants. We want to give low cost access to local spectrum so that anyone who thinks they need 5G coverage on an industrial campus and feels it isn’t served by MNOs fast enough should be able to build their own network.”
There are risks for the vendors too however. Those will have been highlighted by Hanif’s decision to present the Ofcom ideas in the context of boosting start-ups, particularly those backed by open initiatives like the Facebook-inspired Telecom Infra Project (TIP). “There has been skepticism about mobile operators buying from start-ups but now it can be a new ecosystem for TIP and that should incentivize more start-ups to go out and build products,” Hanif said. “The bottom line is that these are revolutionary times.”
Hanif said there would be “no direct interaction” between the MNO spectrum and that dedicated to local usage. “There could be a risk of interference but because these are low power licenses we think it is manageable.”
One challenge will be availability of devices for the 3.8-4.2 GHz band, though this should be boosted by Japan’s decision to set aside this spectrum for 5G. Japan, as well as The Netherlands, is considering similar proposals to earmark airwaves for industrial use.
And of course, Ofcom has to get its proposals through consultation, probably in the teeth of opposition from the operators, and to solidify the licensing regime – length of licenses will be critical, as seen in the arguments over the licensed portion of the CBRS band in the USA. There, many vertical industries and their suppliers had pushed for very localized geographical sizes, somewhat like the UK proposal, and for short durations, to encourage small players. A compromise was eventually adopted, with smaller coverage areas than traditional US licenses, but not as limited as envisaged by the industrials; and with three-year terms to provide some certainty compared to the unlicensed portion, and encourage investment.
In an interview with Martyn Warwick when he was appointed last year, Hanif outlined the way he saw the role of the regulator – to help anyone who wants to innovate in order to improve connectivity “using 5G, WiFi and anything else … in a fair, open and transparent way, without any preference for anyone.”