Discrimination against mobile operator 1&1? Cartel office warns

Discrimination against mobile operator 1&1? Cartel office warns

In its difficult market entry as the fourth German mobile network operator, telecommunications provider 1&1 is receiving support from the Federal Cartel Office.

In September, the Federal Network Agency proposed that the usual frequency auction be dispensed with - this would be a setback for 1&1, which needs additional frequencies for its own network, which is currently being set up. Instead of an auction, current usage rights would be extended - and 1&1 would be left out in the cold. A position paper from the Federal Cartel Office now criticizes the Federal Network Agency's plan and warns of negative consequences for consumers.

Following the Federal Network Agency's proposal, market participants and other institutions were able to put forward their views. The regulatory authority will then deliberate and announce its decision in 2024. The Bundeskartellamt only has a secondary role in this process - it issues the opinion that has now become public, but nothing more. But the opinion of Germany's top competition watchdog does carry weight. The Cartel Office's objections should be taken seriously, says FDP Member of Parliament Reinhard Houben.

Advantages of market entry

In 2019, 1&1 auctioned off frequency rights for its own network for the first time. The project is an expensive one, costing the Montabaur-based company around 5 billion euros by the end of 2030. Until now, 1&1 has used other networks for its mobile business and paid rent. With its own antennas, 1&1 would be on a par with the three established network operators Deutsche Telekom, Vodafone and Telefónica Deutschland (O2). They are not very enthusiastic about the up-and-coming competitor, whose expansion has been very slow. However, the cell phone network is soon to be activated.

In its position paper, the Cartel Office emphasizes the advantages of 1&1's market entry. Functioning infrastructure competition is good for network expansion and enables "low prices for high-performance mobile telephony products", the authors write. Analyses by market researchers pointed out that the price level and range of services in markets with four mobile network operators is generally more attractive than in markets with only three mobile networks. Should the new entrant be slowed down, "this could result in a variety of disadvantages for consumers and the economy, such as higher prices, poorer network quality and poorer network expansion".

Various usage rights expire at the end of 2025; the 800 megahertz frequencies with a long range are particularly important. According to the established network operators, however, there is not enough spectrum to divide it by four - they warn of a deterioration in network quality.

Restructuring networks

This argument is "dramatically" presented and possibly "purely strategically motivated", writes the Cartel Office, pointing out that the three network operators have usage rights in the adjacent areas with similar physical characteristics and that swapping frequency blocks could solve the problem. It is "imperative to consider" restructuring the networks.

In fact, the Federal Network Agency had considered such a swap in 2022, but then did not pursue it. According to industry circles, this was because it would have been dependent on the willingness of the top dogs to implement such a model. However, they were not prepared to swap, partly because it would have been tantamount to supporting their troublesome competitor 1&1.

The fact that usage rights are now to be extended instead and the newcomer 1&1 is left out in the cold is causing the Cartel Office to frown. This would be a form of subsidizing the incumbents, the competition watchdogs complain. The extension would have "serious competitive disadvantages and put the [...] market newcomer at a decisive disadvantage compared to the established mobile network operators". Investments already made would be devalued.

Different reactions

Consumer advocates are also critical of the network agency's plan. "Suspending the frequency auction would severely hinder the market entry of a new network operator," says Felix Flosbach from the NRW consumer advice center. "As a result, no new network operator with sufficient coverage would be able to enter the market and offer consumers an alternative to existing services for the foreseeable future."

The Cartel Office's statement has been received differently by politicians. The Network Agency should "examine the objections very carefully", says the liberal Houben. "In the end, the regulation should be the one that benefits consumers the most in the medium and long term." Existing market conditions should not be cemented.

Johannes Schätzl from the SPD, on the other hand, is cautious. He agrees in principle with the Federal Cartel Office's objective that strong competition improves the market from the customer's point of view. However, the frequency swap was not possible due to a lack of consent from existing network operators, meaning that the network could not be restructured at present. Weighing up the remaining options, the route proposed by the Network Agency is "the best way to improve the network from the customer's point of view", says the Social Democrat member of the Bundestag.

1. The Federal Cartel Office, expressing concerns over the Federal Network Agency's proposal, argued that extending current usage rights instead of an auction could disadvantage 1&1 in the telecommunications market, potentially leading to higher prices, poorer network quality, and slower network expansion for Internet users.
2. In response to the Federal Network Agency's proposal, 1&1, the fourth German mobile network operator, could face challenges in obtaining additional frequencies from the Internet, given that the Cartel Office's position paper emphasizes the importance of infrastructure competition for enabling cheaper and more high-performance mobile telephony products.

Source: www.dpa.com