Israel takes the ‘Vickrey’ approach to 5G auctions

The Israeli telcos have taken a bit of a battering over the last 12-18 months and it seems the Government has a sympathetic ear with its new approach to auctioning 5G spectrum.

According to Globes, the Government will make use of an auction technique known as the Vickery method to divvy up the precious 5G frequencies. It is an interesting approach, and bundled together with other incentives, should create a much more investment friendly environment for the telcos.

A Vickery auction is a blind auction where the highest bidder wins the prize, but the second-highest value is actually paid. Although this approach is uncommon, for some it is believed to be fairer as it attempts to attract bids closer to the value of the asset but does not punish competition for inflated prices. Whether this proves to be true remains to be seen, though it certainly is an interesting approach.

This auction might turn some heads, but context is key. The Israeli telcos have had somewhat of a difficult period in recent years thanks to the introduction of aggressive new players and an on-going price war which has driven down profits. The Israeli Government has suggested revenues declined in telco by 5.6% in 2018, leading some to the assumption the telcos would struggle to fulfil the financial commitments of 5G networks.

“The financial state of the companies at this time has not escaped us, and the tender also takes this situation into account,” said Minister of Communications David Amsalem. “I congratulate my friends and participants in the tenders committee for their professional work. The dedication and responsibility exercised is what made it possible to lay the cornerstone today for the next era of technology.”

To attract further interest in the 5G bonanza, the Israeli Government will also introduce a number of incentives to lessen the burden of network investment. Payments for spectrum licenses can be delayed until 2022 for example, while there are also rebates being offered to those parties who meet geographical coverage expectations set over a four-year period.

Another interesting aspect of the auction is the shared network element. Some of the assets will only be offered to those telcos who agree to participate in the creation of shared infrastructure, a strategy the Government hopes will increase the efficiency of investments.

Looking at the frequencies available, the Government will attempt to ensure all telcos have a slice of the most desirable bands, 700 MHz for example, while a series of other lots will be available. The assets bought in the 2.6 GHz to 3.8 GHz frequencies will only be useable for 5G, while the other frequencies can be used to bolster 4G.

Only time will tell whether this approach will lead to a net-gain in terms of investment and network rollout, but the Israeli Government should be applauded for taking an alternative approach which is potentially better suited to local market dynamics.

Telcos complain about auction as German regulator bags €6.5bn

With 41 blocks available in the 2 GHz and 3.6 GHz bands, this spectrum auction has proved to be a busy one for Germany, but it certainly is a profitable one also.

Lasted 52 days and consisting of hundreds of different bids in what appeared to be a frustrating process, the German regulator will pocket €6.5 billion. It seems Deutsche Telekom and Vodafone were having the biggest feud, sending the total expenditure considerably north of the €3-5 billion expectation.

Sitting at the top of the pile, Deutsche Telekom spent €2.2 billion, while Vodafone contributed €1.9 billion. Telefonica spent €1.4 billion and up-start Drillisch wrote a cheque for €1.1 billion as it searches for a means to break the dominance of the three MNOs.

“Vodafone is committed to bring the full benefits of a digital society to Germany through our gigabit network including 5G,” said Vodafone Group CEO Nick Read. “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.”

And while Read’s comments are as bland as you would expect for a press statement, there have been grumblings elsewhere over price. Deutsche Telekom has said the process has left a ‘bitter taste’.

“The network rollout in Germany has suffered a significant setback. The price could have been much lower,” said Dirk Wössner, Member of the Board of Management of Telekom Deutschland.

“Once again, the spectrum in Germany is much more expensive than in other countries. Network operators now lack the money to expand their networks. With the auction proceeds one could have built approximately 50,000 new mobile sites and close many white spots.”

Deutsche Telekom has secured 4 frequency blocks in the 2 GHz band and 9 frequency packages in the 3.6 GHz band. Vodafone on the other hand has purchased four different blocks in 2 GHz, and one continuous block of 90 MHz in the 3.6 GHz spectrum band. Telefonica collected two paired blocks in the 2 GHz band and seven unpaired blocks in 3.6 GHz.

Although Telefonica feels it can maintain its market share leadership position in mobile following this auction, it also felt the need to vent over a frustrating couple of months.

“We remain convinced that frequency allocation via auction was counterproductive for the expansion of mobile communications in Germany,” said Valentina Daiber, Chief Officer for Legal & Corporate Affairs at Telefónica Deutschland.

“The course of the auction showed that the design as well as the insufficient amount of available frequencies drove up the costs. From the consumer’s point of view and for Germany as a business location, these investment funds would be much better spent on network expansion.”

The telcos will certainly be glad they have a bit of breathing room from the auction process now, though the relationship between the regulator and industry seems to be turning very sour.

No clear winners in the latest US spectrum auction

Millimetre Wave spectrum has been a polarised topic in the US, and now the results are in from the latest auctions, some interesting tales have emerged.

Two spectrum auctions have taken place so far this year in the US, with both results being announced at the same time. $2.7 billion might be a lot to add into the FCC coffers, but it is considerably short of the monstrous amount of cash which was spent ahead of the 3G and 4G connectivity euphoria. Considering the amount of attention which has been given to mmWave, some might have expected this auction to attract more attention.

Strictly speaking, mmWave spectrum should be considered way above what we are talking about here, though the industry seems to have adopted anything above 26 GHz. Here, the two auctions are dealing with assets in the 24 GHz and 28 GHz spectrum bands.

Telco 24 GHz licences Total spend 28 GHz licences Total spend
AT&T 831 $982,468,996 N/A N/A
T-Mobile 1,346 $803,212,025 865 $39,288,450
Starry 104 $48,462,700 N/A N/A
US Cellular 282 $126,567,813 408 $129,404,200
Windstream 116 $20,439,360 106 $6,170,990
Verizon 9 $15,255,000 1,066 $505,733,170

The list of companies who have actually won spectrum assets through the auction is quite extensive, many are regionalised, rural telcos. We’ve only included the big ones here, and some interesting also-rans.

Although there still has been a considerable amount of cash spent during the auction period, the results do seem to imply mmWave might not be as crucial as previously believed. These assets might well be able to transmit huge amounts of data, but shorter ranges in comparison to the low- and mid-band bands, and the risk of signals being easily blocked, perhaps have telco fearing to dig too deep into the pockets.

Starting with Verizon, the telco now owns 65% of the available assets in the 28-31 GHz band. Through this auction and previous acquisitions of XO and Straight Path, Verizon has worked up quite a holding, though considering how much it has been beating its chest in the mmWave debate, it is perhaps surprising it low-balled the 24 GHz auction. Here, the firm only owns 1% of the total assets available.

From T-Mobile US’ perspective, the firm has shored up its spectrum breadth. Previously, the firm had not owned any licenses in the mmWave bands and has been the most critical of the potential of the assets. Spending the most in total across the two auctions, it seems the team is attempting to cover all bases, adding to the 600 MHz assets it has accumulated and plans to launch 5G on later this year.

AT&T’s focus was exclusively on the 24 GHz auction, where it spent the most cash, building out its portfolio in the higher spectrum bands.

Sprint is perhaps the biggest omission from the list, not winning any licenses across the two auctions, though it has previously aired its own criticisms of the potential of mmWave. The firm has started its 5G rollout, primarily using its 2.5 GHz spectrum for the launch. Whether its anonymity in this auction is evidence of its confidence in the success of the T-Mobile US merger we’ll leave you to decide.

There is of course life beyond the four major providers, and there have been some interesting wins across both the auctions.

FWA start-up Starry is an interesting one, winning 104 licenses in the 24 GHz auction. At the Big 5G Event in Denver this year, Starry COO Alex Moulle-Berteaux suggested the business was able to operate at such low prices while scaling in new regions was down to making best use of unlicensed spectrum assets. Spending $48 million this time around suggests a slightly new approach to delivering connectivity for the start-up.

These licences are now owned by Starry in 51 Partial Economic Areas (PEA), suggesting the business could be on the verge of much more aggressive geographical expansion. Details of where in the US Starry has won are not available just yet, but soon enough there will be much more colour on the plans. The assets might be used to shore-up performance in existing markets, or fuel geographical expansion.

US Cellular is another interesting case from the auctions, spending more than $250 million on 690 licenses. The telco currently has a presence in 23 markets across the US, with more than six million subscribers. It certainly isn’t going to challenge on a nationwide scale, however, with a stronger presence in the mmWave segment it could prove to be a worthy pain in the side to the big four telcos.

Windstream is the final ‘also-ran’ which we want to look at here. Spending just over $25 million on 222 licenses across both of the auctions, the team appear to be targeting the emerging FWA segment in some of the regions which are often overlooked in the US.

The firm launched a fixed-wireless access to business customers several years ago, and more recently has added products for consumers. In states such as Nebraska and Iowa, Windstream has pointed out signals can travel further thanks to “fairly flat topology”, while the mmWave assets will help the firm achieve the higher speeds demanded by enterprise and consumers alike.

What is worth noting is this is not the end of the spectrum auction bonanza. Over the next couple of months, the hype will start building for a combined auction in the upper 37 GHz, 39 GHz and 47 GHz bands.

That said, at the moment, the mmWave euphoria is appearing to be somewhat of a let-down.

US drives solid Deutsche Telekom numbers but German 5G auction is a drag

German operator group Deutsche Telekom has reported solid Q1 revenue growth, driven largely by T-Mobile US.

As you can see from the table below, revenues and EBITDA all grew nicely in Q1 2019. Profits, however, went in the opposite direction, apparently due to one-off things like the cost of trying to get the merger between TMUS and Sprint approved. Speaking of the US the second table shows just how much of the revenue growth is attributable to TMUS.

Q12019

millions of

Q12018

millions of

Change% FY
2018
millions of

Revenue 19,488 17,924 8.7 75,656
Proportion generated internationally in % 69.0 66.6 2.4p 67.8
EBITDA 6,461 5,269 22.6 21,836
Adjusted EBITDA 6,901 5,549 24.4 23,333
Adjusted EBITDA AL 5,940 5,487 8.3 23,074
Net profit 900 992 (9.3) 2,166
Adjusted net profit 1,183 1,190 (0.6) 4,545
Free cash flowa 2,370 1,382 71.5 6,250
Free cash flow ALa 1,557 1,318 18.1 6,051
Cash capexb 3,827 3,139 21.9 12,492
Cash capexb(before spectrum) 3,682 3,076 19.7 12,223
Net debtc 71,876 50,455 42.5 55,425
Number of employeesd 214,609 216,926 (1.1) 215,675

 

Q12019

millions of

Q12018

millions of

Change% FY
2018
millions of

Germany
Total revenue 5,357 5,325 0.6 21,700
EBITDA 1,946 1,915 1.6 8,012
Adjusted EBITDA 2,114 2,082 1.5 8,610
Adjusted EBITDA AL 2,108 2,058 2.4 8,516
Number of employeesa 62,358 64,695 (3.6) 62,621
United States
Total revenue 9,796 8,455 15.9 36,522
US-$ 11,124 10,394 7.0 43,063
EBITDA 3,210 2,360 36.0 9,928
Adjusted EBITDA 3,309 2,332 41.9 10,088
Adjusted EBITDA AL 2,679 2,331 14.9 10,084
US-$ 3,042 2,865 6.2 11,901
Europeb
Total revenue 2,891 2,811 2.8 11,885
EBITDA 1,035 905 14.4 3,757
Adjusted EBITDA 1,059 911 16.2 3,880
Adjusted EBITDA AL 945 898 5.2 3,813
Systems Solutions
Order entry 1,609 1,506 6.8 6,776
Total revenue 1,630 1,665 (2.1) 6,936
Adj. EBIT margin (%) (0.2) (2.3) 2.1p 0.5
EBITDA 79 19 n.a. 163
Adjusted EBITDA 125 57 n.a. 429
Adjusted EBITDA AL 92 60 53.3 442

“We got off to a successful start to the year,” said Tim Höttges, CEO of DT. “Deutsche Telekom has much more to offer than just our sensational success in the United States. We are seeing positive trends throughout the Group.”

Not included in his canned comments, but picked up by Reuters, was Höttges inevitable irritation at the amount of cash DT is having to drop on the interminable German 5G spectrum auction. We’re on round 305 of the bidding, believe it or not, and the total pledged has now reached €5,687,520,000. Expect to hear persistent muttering about how that’s money they can’t spend on infrastructure, etc, before long.

Rivals get Rogered in Canadian 600 MHz spectrum auction

Canada made 70 MHz of 600 MHz spectrum available nationally in a recent auction and Rogers got nearly half of it.

Low frequency spectrum such as this is especially handy in huge countries such as Canada due to its long range. Canada split the band, which covers 614-698 MHz including the guard band and duplex gap, into seven chunks of 10 MHz. Each of those in turn was divided into 16 regions, making 112 licenses in total. As you can see in the table below Rogers got 52 of those, dropping C$1.725 billion for the privilege.

Canada 600mhz auction

“We are proud to make leading and meaningful investments to build the 5G ecosystem in Canada and to help drive our country’s global competitive advantage,” said Joe Natale, CEO of Rogers Communications. “This 5G spectrum is a precious and scarce resource that will benefit Canadians and Canadian businesses across the country.”

It’s interesting that this is being positioned as 5G spectrum. Unlike millimetre wave, for example, there’s nothing uniquely 5G about low frequency spectrum, so we can only assume the Canadian government made the spectrum available on the condition that it’s used for 5G. Having said that the quote further down from Shaw appears to contradict that.

In distant second place in terms of spend was Telus. “The acquisition and deployment of this spectrum is critical to the advancement of our national 5G growth strategy and to the global-leading network quality, speed and coverage we provide to Canadians,” said Telus CEO Darren Entwistle. “As the demand for wireless data continues to grow, the acquisition of 600 MHz spectrum will enable Telus to deliver enhanced urban and rural connectivity to our customers on Canada’s fastest and most reliable network.”

Shaw Communications subsidiary Freedom Mobile seemed to get a good deal by paying half as much as Telus for more population coverage. “We have made significant investments to improve the wireless experience for Canadians, becoming a true alternative to the incumbents, with a differentiated value proposition,” said Brad Shaw, Shaw CEO. “The addition of this 600 MHz low band spectrum will not only vastly improve our current LTE service but will also serve as a foundational element of our 5G strategy providing innovative and affordable wireless services to Canadians for years to come.”

Conspicuously absent from the process was Bell, which seems to think it didn’t need any because it’s already sorted for low frequency spectrum. “Bell leverages each new generation of wireless network technology to drive renewed innovation and productivity growth, and with 5G we’ll take connectivity further than ever before with smart cities, connected vehicles and other revolutionary service advancements for both consumers and business users,” said Bell’s CTO Stephen Howe. “Bell looks forward to participating in upcoming federal auctions of the mid band 3500 MHz and high band millimetre wave spectrum that will be required to drive the Fifth Generation of wireless.”

So while Rogers got loads more licenses than anyone else, Freedom Mobile could be viewed at the big winner in terms of cost per population covered. According to Ovum’s WCIS Freedom only accounts for around 5% of Canadian mobile subscribers right now. Judging by the outcome of this auction it has ambitions to significantly increase that share in the 5G era.

TDC hoovers up Danish spectrum in latest auction

The Danish Energy Agency has completed its latest spectrum auction, with TDC running away with the majority of the available assets.

Of the 20 blocks in the 700, 900 and 2300 MHz frequency bands, TDC won 14, the maximum available to the telco at this auction. 3 Denmark acquired two 10 MHz blocks in each of the 700 and 900 MHz bands, while TT Network, Telia and Telenor’s joint venture, two 5 MHz in the 700 MHz and two 10 MHz in the 900 MHz band.

“Several frequency blocks provide higher speed, longer range and stronger indoor coverage, which gives us a unique position to strengthen and develop the best coverage in Denmark,” said TDC CEO Allison Kirkby.

“TDC has connected all over Denmark for almost 140 years, and the new licenses ensure that Danish consumers, companies and society enjoy new experiences, services and the many opportunities that 5G offers.”

With ambitious plans to rollout 5G across Denmark by the end of 2020, this is certainly an aggressive sign of intent from TDC. The telco paid NOK 1.6 billion, roughly €210 million, for its haul, while 3 Denmark paid a total over roughly €68 million. TT Network paid €14 million for its 700 MHz assets and nothing for 900 MHz, though it will be charged with coverage obligations.

As it currently stands, according to Ovum’s WCIS database, TDC is currently the market leader with 42% market share, TT Network controls roughly 40% of subscriptions, while 3 collects the remaining 18%.

While these prices might seem ludicrously cheap in comparison to other spectrum auctions which have been taking place around the bloc, Denmark’s population of 5.8 million ranks it at 111th worldwide, while its land mass ranks at 130th.

DT CEO moans as bidding in German 5G auction tops €1 billion

Just for a change operators are moaning about the amount they have to pay for licensed spectrum, arguing that leaves less cash for infrastructure.

This time the country in question is Germany, which is in the middle of a 5G auction its operators have had a problem with from the start. According to the regulator bidding has already topped a billion euros and, while it still has a way to go before reaching the orgiastic excesses of the Italian one, muttering about the cost has already begun.

Commenting at its recent AGM, DT CEO Tim Höttges made it clear he has a problem with the fact that not all available spectrum is even being offered in the action, which he reckons is bound to have an inflationary effect. “An artificial shortage of public resources is being created, which may push up the price,” he said. “In the end, there is no money for the build-out.”

There was also some general dissent about excessive regulation, ease and speed of access to new cell sites and access regulation for new fibre networks that is considered counterproductive. But the main theme of his speech at the AGM was ‘sharing and participation’ and featured largely generic sentiments about the importance of communications networks and how totally committed to them DT is.

This auction is expected to hit at least three billion euros but, as we saw in Italy, auctions can easily become frenzied. European operators seem to be feeling increasingly inclined to challenge the terms of spectrum auctions but so far their attempts at legal challenges have yielded little. It does seem odd that the German state has held back a bunch of spectrum, however, and it would be interesting to know the rationale for that.

Money is piling up in the US 24 GHz auction

Over 30 companies have put more than $560 million in bid money on the table at FCC’s auction for the 24 GHz frequency. And this is only the beginning.

Following the underwhelming auction of the 28 GHz (dubbed Auction 101) spectrum, which only returned $703 million, the new auction of the 24 GHz (dubbed Auction 102) is heating up quickly. The auction started last Thursday and has gone through 11 rounds of the first phase of the auction, or the “clock phase”, when participants bid on a Partial Economic Area (PEA) blocks. By the end of round 11, the gross proceeds have reached a total amount of $563,427,235. There are still two days, or six more rounds to go, before the winners can move to the next phase of the process.

The “assignment phase” will allow the winners from the first phase to bid for specific frequency licence assignments. The total bid value for the 24 GHz frequencies could go up to between $2.4 billion and $5.6 billion, according to the estimate by Brian Goemmer, founder of the spectrum-tracking company AllNet Insights & Analytics, when he spoke to our sister publication Light Reading.

The key difference the has driven up the interest from the bidders for Auction 102 is the locations where the frequencies are made available. While major metropolises like New York, Los Angeles, or Chicago, were absent from 28 GHz auction, they are all on the current 24 GHz auction together with other major cities that would be the candidates for the 5G services to roll out in the first wave.

Bidders have included AT&T, Verizon, T-Mobile, Sprint and more than 30 other companies. The FCC will announce the winners including those from Auction 101 only after both phases of Auction 102 are completed.

In addition to bidding for mmWave frequencies, operators like AT&T are also actively refarming the lower frequency bands in their possession that are used to provide 3G services. AT&T sent a notice to its customers in February that it will stop 3G only SIM activation, urging customers to move to LTE. The company said “we currently plan to end service on our 3G wireless networks in February 2022.” Specifically the company is planning to refarm the 850 MHz and 1900 MHz frequency bands, saying “it may be necessary for us to turn down one band of our owned and operated 3G network, such as 1900 MHz or 850 MHz service”.

Considering the AT&T only switched its 2G networks off at the beginning of 2017, this is a clear sign that the generational transition of mobile telecom services is accelerating. Earlier in the middle of last year, Verizon confirmed that it will shut down its 3G CDMA networks by the end of 2019. Even earlier at the MWC in 2017, T-Mobile’s CTO Neville Ray said the company was looking to sunset both GSM and WCDMA.

Three UK shows off its new Nokia cloud core

Mobile operator Three UK has upgraded its network with a fully cloud-based 5G-ready core and has started internal trials of the service. It plans to launch 5G later this year.

Three announced that it is testing the world’s first fully cloud-based core network, delivered by Nokia. The software-based core network is 5G ready and is already carrying the ongoing trial for Three’s own staff. The trial is on the 3.4-3.8GHz spectrum Three bought with over £164 million in the auction concluded in April 2018.

The readiness is also achieved on the edge. Three announced that by December 2018, all its mast sites were already connected to the new cloud-based core networks, meaning when 5G is switched on all Three customers would be able to access 5G services, provided they have the 5G-enabled user devices (fixed wireless access modems, or smartphones and tablets).

Another infrastructure update Three announced is the expansion of its datacentre network. The operator used to have three datacentres in London and the Midlands. After the latest upgrade, it now has “21 data centres spread from as far North as Edinburgh to Portsmouth in the South” which are all live and “have been connected up with fibre”, said the statement. In practical terms, the more distributed datacentre network would reduce latency experienced by the users faraway from southern England, giving customers more or less equal user experience.

Indeed, “enhancing its market-leading customer experience and becoming the best loved brand in the UK by its people and customers” is the explicit target of Three’s latest network upgrading. The company reiterated its target to launch commercial 5G service later this year, after committing to invest over £2bn into 5G. “We have been planning our approach to 5G for many years and we are well positioned to lead on this next generation of technology.  These investments are the latest in a series of important building blocks to deliver the best end to end data experience for our customers,” Dave Dyson, Three UK’s CEO, said late last year.

According to the latest telecoms complaints numbers released by Ofcom in January, Three received 4 complaints per 100,000 customers, narrowly behind its mobile competitors EE and O2 (3 complaints each) but way ahead of Vodafone (8).

Germany’s 5G auction has not got off to a flying start

Telefónica Deutschland has filed an urgent appeal against the country’s 5G auction terms. Deutsche Telekom may follow suit.

Telefónica Deutschland was seeking to halt the country’s 5G auction by filing an appeal for injunction at an administrative court in Cologne on Tuesday 5 February. Germany was scheduled to hold the 5G auction by the end of March and was expecting to raise up to €5 billion. The key items on the terms issued by the Federal Network Agency being contested are concerning the coverage requirements, especially the coverage in rural areas and along motorways, and the mandated network sharing with competitors (the so-called domestic roaming).

Telefónica Deutschland argued that the coverage obligations could not be fulfilled with the spectrum at auction, while the frequency in its possession is already being used by other expansion requirements.

“This legal uncertainty is extremely unhelpful for the necessary massive investments in future network expansion. Billions in 5G cannot be invested on the basis of unclear rules. It must be in the interest of all involved that clarity and planning security are created here before an auction,” said Markus Haas, CEO of Telefónica Deutschland.

Telefónica was also unhappy that politicians should demand network sharing between competitors. “We have already invested €20 billion in infrastructure in Germany. We have always said that we will continue to invest if the conditions are right,” Haas told the German publication Handelsblatt late last year. However, as a condition to approve its merger with E-Plus in 2014, EU regulators already required Telefónica to make 30 percent of its capacity available to MVNOs, in this case 1&1 Drillisch.

Meanwhile Telefónica insisted that even if there would be a delay in the auction, “this would not have any influence on a large-scale launch of 5G in Germany. This is because the spectrum available for auction for this purpose will not be allocated to the successful participants until the end of 2020 anyway,” the company said in a statement.

Deutsche Telekom may also consider its position differently now. It first told Handelsblatt “we have not yet made an urgent request, to avoid delaying the auction schedule.” But in light of the new appeal from Telefónica, “we are therefore examining all legal options,” the spokesperson added.

It is not the first time the telcos have resorted to legal measures. By the end of December, Deutsche Telekom, Vodafone, Telefónica, as well as the challengers United Internet and Freenet had all filed lawsuits against the government’s rules over the upcoming auction, but none was successful in halting the process.

Deutsche Telekom, Vodafone, Telefónica, and United Internet (trading as “1&1 Drillisch”) filed applications before the deadline of 25 January to participate in the upcoming 5G auction.