Germany’s bid to catch up on digital age hinges on 5G sale

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Published: March 18, 2019 5:03 PM

While the German government expects the auction, which starts Tuesday, to generate proceeds of as much as 5 billion euros ($5.7 billion), the final figure is hard to predict

A ‘5G for Good’ advertisement hangs from robotic arms in the Deutsche Telekom AG pavilion at the CeBIT 2017 tech fair in Hannover, Germany, on Sunday, March 19, 2017. Leading edge technologies in the digital world are showcased in this annual event which runs March 20 – 24. Photographer: Krisztian Bocsi/Bloomberg

Germany’s effort to catch up to the digital age starts this week with an auction of the airwaves needed to build ultrafast 5G wireless networks.

The rollout will be critical as Europe’s biggest economy tries to reduce its dependence on old-school engineering. The country lags behind the likes of Qatar, Albania and Moldova when it comes to mobile internet speeds, a handicap in the transition to a data-based economy.

“Updating Germany’s digital infrastructure is very important,” said Rubin Ritter, co-chief executive officer of Berlin-based Zalando SE, Europe’s biggest online fashion platform. “There are moments when customers have difficulties accessing our app.”

Chancellor Angela Merkel’s government has promised to create a “world-class” digital infrastructure and end the notorious dead zones that dot the countryside. It’s not just about faster video streaming for mobile phone users: 5G will allow family-owned manufacturers and corporate giants like Siemens AG to digitalize production processes and develop data services.

For the first time, the regulator has set aside airwaves for companies that want to run small 5G networks covering just their factories — and the likes of Daimler AG and Audi AG have said they’ll apply.

While the government expects the auction, which starts Tuesday, to generate proceeds of as much as 5 billion euros ($5.7 billion), the final figure is hard to predict.

The bidders are a select group, comprising current network operators Deutsche Telekom AG, Vodafone Group Plc and Telefonica SA as well as new entrant United Internet AG. The buildup to the auction has been accompanied by controversy, including legal disputes over the terms and pressure on the German government to ban network equipment made by China’s Huawei Technologies Co. over security concerns.

5G promises to be lightning-fast, offering enough bandwidth and speed to download a full-length feature film in seconds. After years of falling share prices, the telecommunications industry is hoping the technology opens up fresh revenue streams, with visions of holographic chats, remote surgery and driverless cars.

But it will need hefty spending to realize that potential. Over the next three years, Deutsche Telekom plans to invest 20 billion euros in Germany on 5G services and high-speed internet connections.

The daunting cost of the new networks prompted bidders to try to stop the auction by filing lawsuits against the government’s requirement that they provide coverage for 98 percent of German homes, every highway and all federal roads with download speeds of 100 megabits per second by the end of 2022. A court threw out those suits on Friday, clearing the way for the auction to start as planned.

Cautious Approach

This won’t be like a cattle auction with an auctioneer driving up the price. It’s more similar to a drawn-out chess game that could take several weeks. The bidding teams are in closed rooms at the headquarters of Germany’s network regulator in Mainz. They will bid on 41 blocks of frequencies akin to wireless building lots, with some more prized than others.

Bidders are likely to be cautious after auctions in Italy and the U.K. overshot on costs, fueling complaints by carriers that governments are using the sales to fill their tax coffers instead of encouraging network investment.

Back in 2000, at the height of the dot-com bubble, a bidding frenzy around 3G frequencies resulted in auction proceeds of more than 50 billion euros, saddling operators with massive debt. Given that Germany needs to catch up, there may be interest in keeping auction proceeds under control so as not to sap the resources needed to invest in the rollout.

Germany can’t afford to lose time. In the U.S., Verizon Communications Inc. and AT&T Inc. have already started 5G services in several cities, and China — another early mover that’s investing aggressively — is forecast to be the world’s biggest 5G market by 2025, according to the GSMA wireless trade association.

The average German business is more focused on simply staying connected.

“Driving with a car through Germany, you lose your cellular connection every five kilometres,” said Stefan Brandl, chief executive officer of EBM-Papst GmbH, a maker of industrial fans based in rural Baden-Wuerttemberg. “The network and the infrastructure we have right now in Germany is a big weakness.”

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