Germany has taken a first big step toward next-generation wireless Internet by becoming the first country in Europe to auction off a sizeable chunk of spectrum to deliver the new high-speed services.
Now users in Europe’s largest mobile communications market will have to wait and see if the operators deliver the goods with 4G (fourth-generation) services, such as LTE (Long-Term Evolution) and WiMAX. Operators’ track record with the much hyped third-generation UMTS (Universal Mobile Telecommunications Service) isn’t anything to brag about. The rollout has been slow and coverage is still patchy. As for the “broadband” speeds and “killer applications,” well, we’re still waiting for them.
The mobile communications spectrum auction in Germany, which ended with little fanfare last week, raised nearly €4.4 billion ($5.4 billion). While the German government can be happy over every additional euro it receives, the total falls far short of the €50 billion generated in the UMTS auction held at the height of the Internet bubble in 2000. Even experts expected more. The accounting firm KMPG, for instance, estimated that the auction would pull in €6 billion to €8 billion.
A big reason for the lower spectrum prices was competition or better a lack thereof. Only the four existing operators participated in the auction. Unlike the 3G auction, this one had no newcomers craving spectrum – the life line of mobile operators – to drive up bidding. Operators in the 4G auction behaved like gentlemen: They bid but they didn’t go on a binge.
The German government auctioned a total 358.8 MHz of paired and unpaired spectrum in the 800 MHz, 1.2 GHz, 2 GHz and 2.6 GHz bands. In all, it sold a total 41 blocks to Germany’s for existing operators: Deutsche Telekom, Vodafone, Telefonica’s O2 and Royal KPN’s E-Plus. The first three of these operators gobbled up the 800 MHz frequencies, the so-called “Digital Dividend” bands, which had been used for analog TV. The lower frequencies are coveted by operators for two big reasons: wider geographic coverage and better in-building penetration. Both of those benefits convert directly into cost savings – fewer base stations to cover larger cells and no need for picocells and other systems to amplify signals indoors.
E-Plus acquired additional spectrum to increase capacity in urban areas. It’s not clear what 4G strategy the operator is pursuing, if at all. The 2 MHz spectrum it acquired points to a possible WiMAX deployment. The spectrum license are “technology neutral,” meaning that operators can pick their technology. But selecting a 4G technology may not be the issue: Rumors are afloat that E-Plus may be put on the block and that Telefonica could be interested.
By comparison, the plans of the other three are pretty clear: they’re headed down the LTE path. All three see broadband mobile Internet as crucial to sustainable growth.
But the German government, after learning a lesson from the slow and patchy rollout of 3G services, has thrown owners of the new spectrum a bit of a curve ball. They have to deploy wireless networks in step-by-step phases. In the first phase, the must build networks covering 90 percent of the population in villages under 5,000. The second phase requires similar coverage in villages from 5,000 to 20,000 and the third phase from 20,000 to 50,000. Only after they’ve gotten their feet dirty out in the sticks can they move into the more lucrative large urban areas.
The German government is serious about increasing broadband connectivity in rural areas over the next couple of years. And this policy is clearly one way to achieve this.
It will be interesting to observe over the coming weeks and months how operators plan to tackle this rollout – how they plan to blend LTE into their existing UMTS and HSPA (High Speed Packet Access) networks and how much infrastructure sharing will occur among them.
One thing is for sure: Demand for high-speed mobile Internet services is growing, thanks in no small part to the iPhone; the devices have made using these services easy and fun – both sorely missing in UMTS. But as the iPhone has also clearly shown, particularly in the United States, it’s one thing to create demand; it’s another to satisfy.
That’s where operators see their core need for LTE. They don’t need any one or any more killer applications. Rather, they require greater capacity, which they have now received, and technology, LTE, that makes optimum use of precious limited spectrum.
I was among the first users of GSM, UMTS and HSPA in Germany. I loved the first, could have passed on the second and am definitely happier with the third. But I must confess, I’m really looking forward to the fourth.