ZEW Economist Vitali Gretschko on the 5G Spectrum Auction
Comment
On 19 March, German launched its auction of frequencies for the new mobile standard 5G. Professor Vitali Gretschko, head of the Research Group “Market Design” at the ZEW – Leibniz Centre for European Economic Research in Mannheim, comments on the auction.
The first rounds of the frequency auction allow us to draw initial conclusions about the bidders’ strategies. The bids placed so far suggest that the main conflict will occur between the new service provider Drillisch and the established network operators. While the absolute sum of the offers and the number of bids per operator provide only little insight into the outcome of auction at this early stage of the spectrum sale, the number of frequencies requested by the service providers can be used as a basis for analysis.
New Entrant Bids Against Established Network Operators
In the first round, Drillisch started off on a strong note, outbidding the minimum price per block by 20 million each. This can be seen as a signal for the other auction participants that the company is serious about the spectrum auction. Whether this is really the case, however, will only become clear when prices rise significantly in the next few days.
Meanwhile, there seems to be no conflict among the established network operators. They are all bidding in a way that promises a timely end to the auction if Drillisch drops out of the spectrum sale. While the auctioning rules allow bidders to submit an offer for more frequency blocks at a later stage of the spectrum sale, previous auctions have shown that this behaviour has little credibility. Once a bidder indicates satisfaction with a specific frequency allocation, it is difficult to convince the other operators of this bidder’s willing to purchase more frequencies.