Frequency sale to reshape US mobile market
August 16, 2016![Deutschland Techniker bei Wartungsarbeiten an Mobilfunkmasten in Teltow](https://static.dw.com/image/19470320_800.webp)
Frequencies are as important for smartphones as streets are for cars - the more available, the quicker the (network) traffic. So an auction Tuesday in the US for rare new mobile frequencies is a matter of coverage, market power and a whole lot of money. It will shape the mobile phone market for decades.
And it will prove especially critical for a number of mobile network providers that are lacking in the rare frequencies up for bids, like T-Mobile, the US subsidiary of Germany's Deutsche Telekom, and its US rivals Verizon and AT&T. With the supply scarce for physical reasons, the pressure on them at the auction block will be high, along with the prices.
A government-brokered deal
The new - or rather repurposed - spectrum has to first be cleared before being made available for mobile phone use. For decades its frequencies have belonged to US television stations. Some of them have hardly been used, while others have been left behind for higher frequency bands in the course of digitalization.
The FCC, the US communications regulator, has taken on in a certain sense the role of broker. In March after a three-year long process, it found out how much money the stations were demanding for their frequencies - $86 billion (76.8 billion euros).
Now the FCC has to find buyers willing to pay at least this much. If bids don't cover the amount, it will call off the auction and start over with the TV stations. The quantity and price of the frequency packages would be negotiated again before being placed back up for sale, a process that could last until 2017.
On the auction block are 600-megahertz frequencies, which "are especially attractive because they can be put to use in rural areas," according to Torsten Gerpott, professor of the telecommunications industry at the University of Duisburg-Essen. Long distances can be bridged with relatively little technology. "And relatively little technology means relatively little investment," he told DW.
T-Mobile's time to buy
More than 100 bidders are standing at the ready - including three of the US' four largest mobile phone providers as well as television companies like Comcast and Dish Network. Among them, T-Mobile is expected to play an especially prominent role, as it has a lot of catching up to do precisely in the 600-megahertz territory.
The Deutsche Telekom subsidiary stands to expand its network and speed up its customers' data transfers. "That would mean that it could win customers by covering more ground and providing more quality in the mobile broadband market," Gerpott said.
"In the past two years T-Mobile has been Telekom's success story, in contrast to other markets," he added. "To continue the success story would require even more spectrum."
T-Mobile management has hinted months ago that it could shell out as much as $10 billion for new frequencies. Deutsche Telekom is even breaking with its long-kept tradition and will be offering financial support to give its US colleagues some room to maneuver. And still, industry experts with the ratings agency Fitch think that T-Mobile could bid more aggressively than so far expected, in hope of grabbing the largest piece of the pie possible.
A matter of speculation
In Germany, the most recent auction of mobile frequencies in 2015 brought in a relatively modest $5 billion euros. This is because the frequencies there still belong to the German government, which rents them out to companies for up to 15 years.
But in the US the highest bidder will walk away with ownership rights, meaning they can sell them again later if they so choose. This helps explain the high number of bidders primed for the current sale - the frequencies are seen by many as objects of speculation.
"Frequencies are being auctioned off in a total of 416 market regions," Gerpott said. "There are also going to be local bidders taking part, which have no significance on the national level and aren't going to stay in the business in the long run."
In any case, the highest bidder can't immediately put its frequencies to use as soon as the gavel strikes. The spectrum will still need to be cleared by the broadcasters and restructured by the FCC to be suitable for mobile waves. This so-called "refarming " is estimated to take up to three years.