On March 19, 2019, the German telecoms regulator, BNetzA, began the country's second 5G auction. Spectrum in the 2.1GHz and 3.6GHz bands is being auctioned to four qualifying operators: three mobile network operators (MNOs) – DT, Telefónica Deutschland, and Vodafone Germany – and one mobile virtual network operator (MVNO), Drillisch Netz. The regulator has attached stringent coverage obligations to the licenses, which the operators have challenged in court. The legal proceedings against the 5G license conditions will start in a few months' time, and the auction has been allowed to continue in the meantime. This causes some uncertainty for operators bidding on spectrum without knowing whether the licenses will still have coverage obligations attached to them.
MNOs continue bidding for spectrum despite uncertainty over ambitious coverage obligations
On March 19, 2019, BNetzA started Germany's 5G spectrum auction, which sees 41 blocks totaling 420MHz of spectrum up for grabs in the 2.1GHz and 3.6GHz bands. The first day of bidding attracted over €332m ($362m) from four operators: DT, Telefónica Deutschland, Vodafone Germany, and MVNO Drillisch Netz, which is intending to become Germany's fourth mobile operator. In fact, encouraging the entrance of a new operator through this 5G auction is one of the main aims of the regulator. Existing MNOs are unlikely to be happy with the prospect of more competition in the market, especially the impact this could have on auction prices. Drillisch Netz's determination to enter the market could result in fierce competition for frequencies, which pushes up prices. By March 28, 2019, bidding had already reached €1.03bn ($1.16bn), so there are signs that bidding is intense.
The start of the auction follows the decision by the Cologne Administrative Court to reject legal challenges launched by participants over the conditions imposed on spectrum license winners, including coverage obligations. DT, Vodafone, Telefónica Germany, and Freenet all requested the auction be put on hold until a ruling on the coverage obligations. However, the judge decided that the rules set by BNetzA are lawful and therefore the auction should go ahead as planned. The main proceedings of the operators' lawsuits against the 5G license conditions will start in a few months. This causes some uncertainty for operators bidding on spectrum now without knowing the outcome of their legal challenge against the license conditions.
The coverage obligations set by BNetzA require participating operators to commit to providing 5G network coverage at a minimum data rate of 100Mbps for 98% of households in each state and on all federal highways, all main roads, and major railway routes by the end of 2022. This is quite ambitious considering current coverage of 100Mbps speeds is around 65%, and the obligations are far stricter than any other country has implemented so far when auctioning 5G-suitable spectrum. Also, each existing carrier must install 1,000 5G base stations and 500 other base stations in defined "white-spot" areas by the end of 2022. By the end of 2024, 5G coverage should be extended to seaports, main waterways, and all other road and rail routes in the country. These rules would ensure faster 5G rollout in the country, in particular connecting parts of the country that are currently underserved. New entrants would not need to adhere to these minimum coverage rules.
The existing frequency usage rights for the 2.1GHz band are set to expire in December 2020 and December 2025, while the rights for the 3.6GHz band will be available after December 2021 and December 2022. Therefore, the winning bidders will not be able to use the frequency rights immediately, which shortens the timeframe for meeting the ambitious coverage targets. As there are still doubts over the 5G business model, introducing 5G spectrum obligations such as these does make it difficult for operators to build a business case for bidding for these frequencies. It is unsurprising then that the operators have filed a legal challenge, even though this doesn't seem to have stopped them bidding on frequencies.
BNetzA has also introduced additional security requirements on spectrum licenses. These requirements refer to operators of public telecoms networks with a high potential threat. The elements of the rules include the sourcing of systems only from trustworthy suppliers that follow national security regulations and provisions for the secrecy of telecoms and for data protection. Operators must also conduct regular and constant monitoring of network traffic for any abnormality. If there is any cause for concern, appropriate protection measures must be taken. In addition, there must be certification of security-related network and system components by the Federal Office for Information Security and IT security checks.
Germany (Country Regulation Overview), GLB005-000132 (February 2019)
5G Service Provider Tracker: 4Q18, GLB007-000195 (January 2019)
Spectrum Auction Tracker: 2018, GLB005-000094 (October 2018)
"Germany looks to release more 5G-suitable spectrum in 2019," GLB005-000113 (November 2018)
"German regulator paves the way for 5G with spectrum auction planned for 2018," TE0007-001166 (July 2017)
"Germany fires the starting gun for the 700MHz race in Europe," TE0007-000910 (June 2015)
Sarah McBride, Analyst, Regulation