The logos of telecommunication companies who bought 5G frequencies in Germany (from top left) Telefonica, Vodafone, Drillisch and Deutsche Telekom. Picture: DPA/AFP
The logos of telecommunication companies who bought 5G frequencies in Germany (from top left) Telefonica, Vodafone, Drillisch and Deutsche Telekom. Picture: DPA/AFP

Frankfurt — Germany’s pricey 5G spectrum auction drew protests from existing mobile operators but cheered investors betting the entry of a new player will revive competition and help close a connectivity gap with the US and Japan.

For market leader Deutsche Telekom, the auction, which ran for a record 12 weeks and raised €6.55bn ($7.4bn), left a “bitter aftertaste”, while rival Vodafone called the result “catastrophic”.

Markets took a different view on Thursday after 1&1 Drillisch, the mobile upstart run by billionaire Ralph Dommermuth, bagged the spectrum he needs to realise his dream of becoming Germany’s fourth network operator.

Shares in 1&1 Drillisch, hitherto a virtual player that rented network access from others, rallied by up to 7%. They had lost half their value over the past year on concerns that heavy network outlays would wreck its profitable asset-light model.

United Internet, which controls Drillisch and is also run by Dommermuth, gained 5%.

“We’re happy with the spectrum we got — and the price we paid for it,” Dommermuth’s spokesman said after Drillisch paid €1.07bn for 70MHz of the 420MHz allocated by the federal network regulator (BNetzA).

Drillisch eventually stepped back from contesting the last of the 41 spectrum blocks, bringing the auction to a close after a record 497th round.

One opponent, speaking on condition of anonymity, complained that Drillisch could have achieved the same result as early as round 111. “Its continued bidding inflicted damage of €4bn on the entire industry,” the person said.

A source close to Drillisch rejected that suggestion, saying there was still everything to play for at that stage.

Analysts say Dommermuth played a shrewd poker hand because, even after buying spectrum, he is not pre-committed to building his own network and can bargain from a position of greater strength on network access with the existing operators.

Drillisch had a strong management team that was exploring options “to improve an existing, sustainable business”, said Jefferies analyst Ulrich Rathe.

Europe’s largest economy scores poorly on measures of connectivity — in part the result of high spectrum costs that have over the years driven mobile industry consolidation, leaving three operators standing — Deutsche Telekom, Vodafone and Telefonica Deutschland.

That structure has encouraged complacency, leaving politicians fuming as voters complain about “funkloecher” — network holes — and leading the regulator to set tough coverage requirements in this auction round.

The Federation of German Industries said that, now the 5G auction was over, it was vital to support industrial digitalisation — networks to run connected factories are one 5G use — to ensure that Germany keeps its export edge.

“The goal must be to provide industry with the world’s fastest and safest networks,” the federation said on Thursday.

Finance minister Olaf Scholz pledged to plough 70% of the auction proceeds back into upgrading Germany’s fibre-optic broadband networks, with the remaining 30% supporting digital schooling.

Germany is lagging countries like the US, Japan and Korea that are already starting to roll out 5G services.

Vodafone’s Germany boss Hannes Ametsreiter called for some of the proceeds to subsidise mobile network investments as part of a broader 5G industry alliance.

Operators complain that other European countries have either awarded 5G spectrum for free, like Finland, or more cheaply, like Austria. Germany’s auction proceeds would be enough to erect 50,000 mobile masts, said Ametsreiter.

But, said the second industry source, much of the complaining was “for the gallery” and reflected the advantageous terms offered by the regulator to smoothe the way for Drillisch to enter the fray as a fourth operator.

Freenet, another mobile virtual network operator (MVNO), said the result of the 5G auction was good news for both itself and consumers.

“With four networks, not only will infrastructure competition be encouraged, but also competition to provide the best services,” Freenet’s Rickmann von Platen said.

Germany’s main consumer federation agreed: “Competition livens up business and leads to lower prices,” Klaus Mueller, head of the vzbv, told the Rheinische Post.