Opportunities For UPC In O2 Spectrum Divestiture
BMI's view that Telefónica Deutschland would be required to divest excess spectrum in order to secure regulatory approval for its proposed acquisition of rival E-Plus looks set to play out. Specifically, the Federal Networks Agency (BNetzA) believes the merged entity would dominate in the 1800MHz band, giving it an unfair advantage in the nascent 4G mobile broadband market. Observers believe that a new player could enter the market by buying this spectrum but we believe a newcomer would face - in extremis - the same difficulties that prompted O2 and E-Plus to merge in the first place.
The deal, as announced on October 2013, would see KPN sell E-Plus to Telefónica Deutschland for EUR5bn in cash plus a 20.5% stake in the enlarged business. At the time, BMI took the view that the transaction would be approved in order to safeguard investments in infrastructure and services, but that concessions would be demanded of Telefónica, specifically the sale of excess resources such as spectrum and infrastructure. BNetzA's statement, following six months' analysis of market conditions and consulting with industry players is, therefore, not surprising and we expect Telefónica to respond in short order with proposed remedial measures.
Between them, Germany's four mobile network operators have rights to use a total of 607MHz across five important bands. Currently, the overall distribution of spectrum is fairly equitable, with E-Plus owning 139.4MHz and O2 158.7MHz, versus Vodafone's 154.5MHz and T-Mobile's 154.6MHz. However, post-merger, O2 would effectively have control of 49% of frequencies used to provide public mobile communications services in Germany. More significantly, it would control 64% of spectrum in the 1800MHz band, a set of frequencies that are increasingly being used to offer advanced mobile broadband services - via 4G LTE technology - in urban areas.
|UPC Stays Tuned To Spectrum Developments|
|Spectrum Holdings By Operator By Band (MHz)|