Daily Times

Germany’s years as a cosy oligopoly in which the Big Three mobile operators carve up a saturated market could be about to end as billionaire Ralph Dommermuth joins the fray to bid for a fifth-generation licence.

Such a ‘three-to-four’ move would inject fresh competition into Europe’s largest market. Users paying some of the highest charges in Europe stand to benefit, while operators would face pressure on margins as they battle for customers.

1&1 Drillisch, a so-called ‘virtual’ operator (MVNO) controlled by United Internet, ended months of speculation on Thursday by saying it would join the 5G bidding round due to be held in March.

Dommermuth, who runs both firms, is for now only seeking an entry ticket to the auction. Whether he walks away with spectrum is another matter – and even if he does, that doesn’t mean he would end up building and running his own network, say industry sources and analysts.

“Consumers would benefit from the entry of United Internet because it would have to win market share through low prices and aggressive marketing,” said Torsten Gerpott, economics professor at the University of Duisburg-Essen.

Dommermuth, who runs both firms, is for now only seeking an entry ticket to the auction

“But in applying, United Internet is only keeping the option open to stay in the game.”

The mere prospect of Drillisch becoming a fourth operator has led its market value to halve, and capped shares in the existing operators – Deutsche Telekom, Vodafone and Telefonica Deutschland.

The precedents are not auspicious: A similar ‘three-to-four’ transition took place in France with the market entry of Iliad in 2012.

“It tends to end in a price war,” said Neil Campling, global TMT analyst at Mirabaud Securities in London.

“We saw massive price destruction – and that wasn’t good for shareholders or operators.”

Iliad, founded by Xavier Niel, undercut competitors by 50 to 80 percent in France. It wiped out nearly 50 percent of its rivals’ free cash flow, one analyst estimated, forcing them to slash costs to adjust to lower prices as they desperately sought to retain customers.

Iliad went on to launch last year in Italy, where it also bid aggressively for 5G spectrum. It is still burning cash and is now losing French customers.

In the Netherlands, another ‘three-to-four’ play ended in failure as the local arm of Sweden’s Tele2 ended up being taken over by Deutsche Telekom.

European Union regulators waved through that deal because the business had ceased to be viable. Faced with the prospect of the company being wound up, they dropped their usual objections to market concentration.

Published in Daily Times, January 27^th 2019.