Economists criticize German frequency auction

frequency auction photoGermany will auction frequencies from the 2 GHz and 3.4 GHz to 3.7 GHz bands - now the conditions are published

The mobile communications standard 5G is seen as a very important future technology for German industry. Several large network operators therefore want to secure the necessary frequencies. Experts already worry about the strict conditions that the successful bidders need to fulfill.

5G promises superfast Internet, theoretically in every corner of the country. The new mobile communications standard is considered a prerequisite for digital transformation in industry, enabling industry 4.0 applications and the communication between machines. Hence, the frequency allocation is urgently needed to help Germany become a 5G lead market.

Strict conditions for providers

This month, the Federal Network Agency announced the conditions under which it will auction the requested frequencies. Economists of the German Economic Institute fear that the agency may set the wrong incentives. The Federal Network Agency will auction the frequencies to the network operators in early 2019 and has already set rather strict conditions tied to the allocation.

For weeks, the agency has discussed various requirements that must be met by network operators winning some of the auctioned frequencies: The operators should cover all highways, federal and rural roads and at the same time guarantee a 98 percent 5G supply to the population. 5G should finally provide, especially in rural areas, a nationwide supply of fast Internet.

These provisions are now partly confirmed in the currently revealed final decisions of the agency: 98 percent of households in each German state should be provided with at least 100 mbit/s until 2022. Furthermore, roads, railroads and even waterways must be supplied with high-speed internet by no later than 2024. In order to improve competition, new market entrants need to fulfill significantly weaker conditions. For example, they must supply only 25 percent of households by 2023.

Nationwide coverage will be very costly

The German economists criticize that nationwide coverage is very costly, because the new frequencies have only a short range and network operators would therefore have to set up many new mobile masts. Too strict conditions would mean that operators would offer less for the frequencies and the state generates lower revenues.

The economists suggest that there are other ways to improve network coverage: Rural areas could be helped in a different way: If the state helps network operators with subsidies, it would be worthwhile to close dead spots. This is already common practice in optical fiber expansion. This solution would relieve network operators, increase their bids for the 5G frequencies and thus the auction revenues and set the right incentives for the expansion of the new mobile standard.

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