German Regulator Makes Many Compromises in 5G Spectrum Auction

The Advisory Council of the Bundesnetzagentur (Federal Network Agency) has approved the proposed auction rules for the allocation of 5G frequencies in spring 2019. Professor Achim Wambach, president of the Centre for European Economic Research (ZEW), Mannheim, and chair of the Monopolies Commission, comments on the award conditions which will determine the allocation procedure.

“This auction will set the path for both the mobile communications market and, more generally, the digitalisation of the German economy in the coming decade. The award conditions for network operators include obligations to provide no less than 98 per cent of German households as well as heavily-frequented railway lines with downlink peak rates of at least 100 Mbit/s. Furthermore, certain frequency blocks also come with the obligation to cover all federal motorways and highways with speeds of 100 Mbit/s. Overall, these conditions present a good compromise. The German regulator was right to refrain from excessively high requirements, some of which would have placed a disproportionately heavy burden on the companies entrusted with the network expansion.

Auction rules to promote competition still have room for improvement

The role of the auction rules in stimulating competition should, on the other hand, be viewed in a more critical light. Although coverage obligations are lower for new network operators – which are required to ensure that only 25 and 50 per cent of households have access to 5G networks after three and five years, respectively – legal barriers make it difficult for new competitors to access the networks of established providers. In order to overcome these legal barriers, the regulator is calling for new competitors and established providers to reach an agreement through negotiations. It is, however, questionable whether this will suffice to make market entry more attractive.

According to the auction conditions, service providers should also gain access to networks through negotiations, with the Bundesnetzagentur assuming the role of arbitrator in order to prevent discriminatory behaviour. It remains to be seen whether it will become necessary to legally oblige companies to grant access to others.

Some of the 5G frequencies will be used in local applications like industry 4.0 or smart cities, and will be allocated to interested companies through a different procedure, and not via auctioning. If local companies benefit more from these frequencies than mobile providers, they should be allocated to them. In order to test whether this is true, it would, however, have been necessary to sell these regional frequencies through an auction.”