The German telecoms regulator is nearing the conclusion of its auction process for fifth-generation (5G) mobile licences, and has already received bids for licences totalling €5.5 billion.
The details of the 5G licence conditions should be of particular interest to the Irish Government, since some of the licence conditions in Germany directly address the issues currently being considered by the Government here relating to the National Broadband Plan. The Government should be especially interested in one of the main licence conditions being imposed on bidders in Germany, which is that the licence holder must provide “coverage with a transmission rate of at least 100Mbit/s for at least 98 per cent of households in each federal state by the end of 2022”.
The German licence conditions also impose strict service quality parameters addressing issues such as latency, network infrastructure sharing and national roaming, and include a tiered penalty regime for failures to meet these licence conditions.
What is remarkable about these licence conditions is that, although German mobile operators lobbied against their inclusion, and even unsuccessfully sued the German telecoms regulator in Cologne’s administrative court in the weeks leading up to the auction, it did not deter the operators from valuing the licences at more than €5 billion in the subsequent auction process.
The strength of the bids in Germany is a clear sign that the mobile operators can justify investing at least this sum on 5G licences, even with the demanding rural coverage conditions attached to the licences set by the German government.
Vodafone Germany, sister company of Vodafone Ireland, has already bid in excess of €1.5 billion for the 5G licences in Germany, and has accepted the condition that it must achieve download speeds of 100Mbit/s to 98 per cent of German households within three years.
Quick calculation
To put this in context, the current value being attached to the 5G spectrum licences in Germany implies that the mobile industry in Germany has put a value of €130 per German household, even with the 98 per cent condition. The German licences make clear that failure to deliver on this condition leaves the mobile operator open to significant financial penalties, and even the possibility of having its licence withdrawn.
For Irish observers, a quick calculation suggests that if this coverage condition was applied by Comreg in its forthcoming 5G auction process, the Government could reasonably expect bidders to pay a similar amount per Irish household, resulting in a net payment to the exchequer of about €230 million.
Comreg could expect to receive €230 million from Irish mobile operators in return for their obligation to guarantee 100Mbit/s broadband to 98 per cent of all households within three years
In other words, Comreg could expect to receive in the order of €230 million from Irish mobile operators in return for their accepting the obligation of guaranteeing 100Mbit/s broadband to 98 per cent of all households in Ireland within the next three years.
This is a much more attractive proposition than having to commit €3 billion to obtain a guarantee from the sole remaining bidder in the NBP procurement process to produce a similar outcome.
Granted, the 98 per cent licence condition potentially still leaves 2 per cent of Irish households without high-speed broadband. It’s also fair to argue that Ireland has a higher proportion of rural dwellers than Germany. According to the most recent UN report on urbanisation, Ireland’s proportion of rural households stands at 37 per cent, compared with 23 per cent in Germany. However, a significant part of Germany’s landmass includes the former Eastern Germany, which has a population density much closer to Ireland’s. Even allowing for this difference, it’s a safe bet the cost of delivering high-speed broadband to every household in rural Ireland will be a lot less using the 5G licence process than the NBP’s proposed €3 billion spend.
Download speed
Recent Irish media coverage and comments from mobile industry executives arguing that 5G is unsuitable for rural broadband should be viewed sceptically – this spin represents an attempt to head off similar licence conditions here. All sorts of legal and technical excuses were thrown at the German regulator to avoid the imposition of coverage and download speed conditions. The Government should understand that Irish mobile operators are never going to be enthusiasts of network coverage conditions designed to deliver in rural areas, as was indeed the case in Germany.
The simple truth is that the requirement to extend their networks to rural locations results in lower profits
The Government needs to ask itself why the mobile industry is touting 5G’s ability to deliver download speeds of many hundreds of megabits per second, yet falling over itself to limit this capability to large towns and cities. The simple truth is that the requirement to extend their networks to rural locations results in lower profits.
The outcome of the German auction process is a useful guide to the commercial and political reality that strong regulatory action can deliver on government objectives.
The Government has a new opportunity to maximise the benefit to taxpayers and rural broadband users in Ireland by scrapping the existing rural fixed broadband procurement process and instead prioritise the delivery of high-speed broadband to rural locations via the 5G licence process. This approach, which is the one now being adopted by the German government, is much more likely to deliver on all of the objectives of the National Broadband Plan faster, with less risk, and at a fraction of the cost to the Irish taxpayer.
Liam Young has a background in the telecommunications and IT industries. He was the founder and chief executive of Conduit and is chairman and chief executive of Errigal Bay Ltd, a seafood firm based in west Donegal