Fast, Expensive and Politically Polarizing
Germany Prepares to Auction Its 5G Frequencies
The man responsible for saving Germany from its mobile dead zones has a rather counterintuitive task at the moment. Jochen Homann, the head of Germany's Bundesnetzagentur, the agency in charge of the country's telecommunications grid, has to create the mother of all dead zones. One that is absolutely unreliable, unavoidable and offers not even a smidgen of mobile service.
Starting March 19, Homann's employees will activate jammers from their office in Mainz-Gonsenheim. That office, located in a former barracks that employees refer to as "the bunker," will soon host an auction of dizzying proportions. And Homann is something like the chief auctioneer.
The goods that will ultimately go to the highest bidder aren't even all that glamorous; they are invisible, intangible, tasteless frequencies, or rather, the rights to use certain transmission frequencies. At the auction, Homann will be putting licenses to operate Germany's mobile networks up for bid. But not just any mobile networks -- 5G networks. If data is the raw material of the economy of the future, then 5G frequencies will be the highways upon which that material is transported. But unlike data, these frequencies are in short supply -- and thus particularly valuable. They are incredibly fast and incredibly expensive.
There's also the auction's economic significance: Together with underground optical fibers, the 5G network is expected to finally bring Germany's digital infrastructure up to speed. Large parts of the country still lack fast connectivity. In international broadband rankings, Germany often does remarkably poorly.
The expectations for the auction are high, perhaps too high. Powerful interests will clash. Politicians want nationwide coverage, even though the frequencies up for bid aren't suited for such a task. The network operators want the best deal. They want as many frequencies as possible, for the lowest price and with the least amount of strings attached, such as how many households and roads they would be required to supply and by when. Of course, these goals run counter to those of the politicians -- and that's not to mention the hopes of the German finance minister. More than anyone, he's most keen on the auction being a windfall for public coffers.
The Bundesnetzagentur will allow four companies to bid on the frequencies. They will include the three major network operators -- Deutsche Telekom, Vodafone and Telefónica -- as well as 1&1 Drillisch as a potential newcomer. The operators don't really have a choice but to bid on at least some of the 41 available frequency blocks -- the alternative would be to miss the boat on 5G completely, and that's not an option.
No More Hourglasses or Pinwheels
5G is a mobile network, but it's got very little to do with making phone calls. Those will continue to be transmitted in Germany via existing infrastructure. Above all, the next generation stands for high-performance data transmission with minimal response time. This will be an important prerequisite for the factories of the future, telemedicine and autonomous driving, for instance. Private users will be able to download a full-length, high-resolution movie in 5G to their end devices within seconds. The days of endless hourglasses and colorful pinwheels will be over.
But there is a dispute over the auction and over the 174 pages of conditions laid out by Homann's agency. So far, a total of nine lawsuits have been filed. The three current network operators have even filed emergency appeals against the stipulations. Should the administrative court in Cologne rule in their favor, it could render even the auction date invalid. "There would be danger of a delay that could take years," Homann warns.
That would be very embarrassing, especially for Germany's government coalition, which hopes to make Germany the "leading market" for 5G. Even if the auction goes ahead on March 19, Germany won't be at the front of the pack anyway. Germany isn't a 5G pioneer -- that title belongs to countries like South Korea and the United States, which have already begun constructing the first commercial 5G networks. Switzerland is set to follow suit this month.
Hype, Hype and More Hype
It's unclear why the already dominant network operators are willing to risk further delay with their suits. What has made them so combative? And what will all this bickering mean for the economy -- or, more importantly, the people who will ultimately be footing the bill for all the frequencies and new transmission masts (the customers)? That's the real question: How much is 5G worth to consumers?
There is plenty of anticipation and enthusiasm for technology surrounding the next generation of telephony and data transmission. But in order to really get a feel for that excitement, one must travel a bit. To Barcelona, Spain. Earlier this month, the world's mobile communications industry descended on the Catalonian capital for the Mobile World Congress trade fair. The sprawling venue glittered and shone like a gigantic electronics store where everything was on sale.
Flashy "5G" logos were everywhere. Manufacturers and network operators sang the praises of the next generation of digital communication. The stars of the show were the first new 5G-compatible mobile phones, first and foremost the top models from Samsung and Huawei with their foldable displays that allow the phones to double as tablets. The high-end devices will soon be available for purchase starting around $2,000 (1,769 euros).
Deutsche Telekom was at the congress too. Amid all the 5G-related hype, the quarreling and complaints surrounding the Bundesnetzagentur's auction back home seemed almost surreal. Claudia Nemat, a member of Telekom's board responsible for technology and innovation, was clearly making an effort to seem optimistic about things, such as the premiere of a new computer game. On a giant monitor behind her, a playing field could be seen full of smartphone-wielding youths throwing virtual balls at one another. The game of digital dodgeball was conceptualized in cooperation with the maker of Pokémon GO, Niantic, and Samsung to demonstrate the potential of "modern gaming" with 5G: For instance, more players will be able to move simultaneously through technically enhanced worlds ("augmented reality"). The dodgeball game could become "the next big thing," Nemat said -- at least that's what the Telekom executive is hoping.
Fast Internet, Slow Devices
But the most profound application of the new technology will be much more modest -- to bring fast internet to where it has long been lacking, namely in rural areas. The head of United Internet, Ralph Dommermuth, who has already secured a line of credit for 2.8 billion euros ($3.2 billion) to bid on frequencies and network expansion projects, described 5G as a "substitute for a landline" and a "huge opportunity, especially for rural regions." Speaking to DER SPIEGEL, he said: "They won't have to dig or rewire their homes and will still be able to use their devices at gigabit speeds."
In fact, early adopters in the U.S. and Switzerland are focusing more on improving broadband for homes rather than for mobile customers -- because there aren't enough 5G-compatible smartphones or transmitter masts yet.
The question remains: What will German customers be willing to pay for a high-speed network? Even now, access to LTE with large data volumes is expensive in Germany compared to other countries. Many customers, therefore, simply forgo faster connections.
The first surveys regarding 5G are rather sobering from the perspective of the network operators. According to an analysis by the industry association Bitkom, one in four customers would only be willing to pay less than 10 euros a month extra for 5G. Roughly one in three would pay an extra 20 euros. But: 39 percent of respondents said they were fundamentally not willing to pay more for 5G. And that's not to mention the fact that every new customer needs a new, 5G-compatible smartphone anyway.
Much-Hyped 'Miracle Networks'
For Telekom, Vodafone, Telefónica and newcomer 1&1 Drillisch, the question is how they intend to earn back any investment they make in frequencies and network expansions.
This question is made all the more urgent because 5G could lure away another important group of customers: corporate and business clients.
Many companies are waiting for the much-hyped "miracle networks" -- more so than most private customers, who would be perfectly satisfied with a stable 3G or LTE network. German automakers, for instance, have long since recognized 5G as a new, high-performance basis technology -- not only for autonomous driving, but also for production in their increasingly networked and automated factories.
The problem for the likes of Telekom and Vodafone and Co. is that many industrial companies want to set up their own local "campus 5G networks." And they could buy the necessary technology directly from the supplier, cutting out the middleman. They could simply become their own network providers.
One thing that drives the big telecom companies particularly crazy is the fact that carmakers aren't required to buy the usage rights for their frequencies at the Budnesnetzagentur's auction. They will be able to apply for them for an administrative fee. From the perspective of the network operators, this is scandalous and antithetical to competition. But most importantly, they say it reduces the value of the remaining frequencies.
Audi is already cooperating with the hardware supplier Ericsson to experiment with its own 5G radio cell in its "production lab" in the southern German town of Gaimersheim. Apparently, the company's first experiments have gone well so far. "We're going to apply for an industrial license and an in-house 5G network," says Arjen Kreis, the head of automation technology for chassis production at Audi. The "protection of trade secrets and patents" is reason enough for the radio network to be controlled by Audi and Audi alone, he adds.
Daimler, Volkswagen and BMW have also expressed interest in applying for their own licenses with Homann's agency. Companies like BASF, Siemens and Airbus have also been lobbying the Bundesnetzagentur to allocate local frequencies to big businesses.
Daimler justified the necessity of having its own networks in a letter to the Bundesnetzagentur, stating that in the future, some 6,000 robots at a production site will have to "communicate in real time and with the lowest possible network latency." The company is also planning to transmit software updates for its vehicles via 5G.
The network operators aren't only afraid of losing important customers, they would also have to forgo about a quarter of the frequencies they would have liked to market themselves. In a statement, Telefónica described the agency's plan as "unlawful."
The head of Vodafone Germany, Hannes Ametsreiter, is afraid of "a patchwork and the next liability in current auction." The planned allocation of local frequencies makes "investment less attractive, calculable and sustainable for us," he says. Above all, he fears that "the opposite of what we were always promised will happen. Because the current status of campus network operators is that they can even offer services outside their premises for third parties."
Meanwhile, the supposed victims of the Bundesnetzagentur's policies -- the telecoms -- are planning their own all-inclusive packages for industrial clients, the selling point being that they will build an archipelago of 5G networks for corporations in the industrial sector, as well as operate and maintain them on request. In November, Vodafone brought its first 5G radio mast online in the western German town of Aldenhoven and announced that it would be setting up the first 5G production facility together with the Aachen-based electric car manufacturer e.GO "as a partner for business."
In Barcelona, Nemat, the Telekom executive, also pressed a symbolic start buzzer for her company. A livestream showed a factory in Schwabmünchen, near Munich, belonging to the lighting manufacturer Osram. A small transport robot then began to move, navigating its way past spots of magenta light. Given the Telekom trade fair motto "5G becomes reality," the company wasn't being entirely honest when it claimed that Osram had, with Telekom's help, made the switch from WLAN to LTE "in the first campus network of its kind."
A Very Political Issue
The Bundesnetzagentur's auction was originally supposed to be an apolitical affair; on paper, Jochen Homann's agency is a neutral organization. But that's not the case at the moment. His agency takes its orders from the German Economics Ministry, and several members of parliament sit on the agency's advisory board. Those parliamentarians, in turn, represent many citizens and businesses angry about dead zones.
The path to the next generation of mobile communications is shaping up to be a political issue -- on several levels.
When it came time to establish rules for the auction, members of parliament with Chancellor Angela Merkel's conservatives managed to push through stricter conditions for the network operators. Among other things, they used the governing coalition's stated goal of promoting "equal living conditions" between rural and urban residents. From the point of view of Ametsreiter, the Vodafone manager, politicians are trying to solve old 4G problems with the new technology. He calls this a "German fallacy."
He attributes Germany's delay in expanding its digital infrastructure to previous auctions. The infamous UMTS auction in 2000 earned the government around 50 billion euros -- money the companies then did not have at their disposal to build their networks.
Even Telekom boss Tim Höttges doesn't miss a chance to criticize the German government, which controls a 32-percent stake in his company. At the government's latest digital summit, he openly confronted the government minister responsible for Germany's digital infrastructure over the auction conditions. "Politicians demand 5G connectivity in every corner and expect the private sector to pay for it," he complained. His vice president for public and regulatory affairs, Wolfgang Kopf, talks of "disproportionate actionism" when it comes to the auction conditions.
But what makes Germany's three largest mobile communications companies particularly uncomfortable is the new, fourth bidder, 1&1 Drillisch, upon which the Bundesnetzagentur is imposing less stringent regulations. Vodafone, Telekom and Telefónica are worried about 1&1 competing with them in attractive, densely populated areas, and thus getting a foothold at their expense. "The development of expensive infrastructure in rural areas, on the other hand, remains the responsibility of the network operators," reads a statement from Deutsche Telekom.
Beware of the Chinese, the U.S. Warns
The debate has at times been overshadowed by U.S. pressure to exclude the Chinese telecommunications giant Huawei from the expansion of the new networks. There is a danger of espionage, Washington says, or even of the company -- at the behest of the Chinese government -- flipping a "kill switch" in the event of a conflict that could cripple the relevant new infrastructure. Even in Barcelona, where the Huawei brand was omnipresent as one of the Mobile World Congress' main sponsors, a U.S. delegation publicly challenged the Chinese.
Huawei's response has been a mixture of demonstrative self-confidence, a massive PR offensive and, recently, lawsuits.
The is "zero evidence" for the Americans' accusations, says Walter Haas, Huawei Germany's chief technology officer. "Now that German cars and car parts have also been declared a threat to the national security of the United States, it must be clear to everyone that this is just brutal economic policy," he says.
In Germany, all three major network operators use Huawei radio technology. Roughly half of Telekom's 27,000-some base stations were "made in China." Even the group's 5G test facility in Berlin uses Huawei technology.
However, there are European alternatives, including Ericsson (Sweden) and Nokia (Finland) ,both have modern transmitters on offer, though each of these companies outsources some of its production to China. Samsung (South Korea) also manufactures network infrastructure and hopes to profit from the technology standoff between the U.S. and China.
In total, Huawei has equipped about half of the 75,000 base stations for Germany's existing networks, Haas explains. It's done so through its German subsidiary, a limited liability company that is subject to German law. "Unlike American providers, we don't store any data in the cloud -- and we pay our taxes in Germany," he says. Moreover, 5G would practically be impossible without Huawei, since the company has played a decisive role in its development and owns a number of important, relevant patents.
A Circus of an Auction
The Chinese have also received support from the head of the Vodafone Group, Nick Read, who has also spoken out against a ban. Without Huawei, he says, an expansion of the 5G network would take two years longer and be considerably more expensive.
The conflict between the U.S. and China further intensified last week: On March 7, Huawei's lawyers filed a lawsuit in Texas against the U.S. ban on the company's products, which they contended was unconstitutional.
The German government will at least partially acquiesce the Trump administration's request. Last Thursday, the Bundesnetzagentur announced -- with Solomon-like equanimity -- that it would be imposing "additional security requirements" and controls for all providers, allowing it to keep its options open.
In light of all the legal actions and politicized proceedings, can 5G maintain its attractiveness as a future technology? Or will all the tumult further hinder Germany's attempts to become a developed country digitally?
Torsten Gerpott, an expert in technology planning at the University of Duisburg-Essen, expects there at least to be a development at different speeds. "Industrial applications will drive 5G in Germany," he says. But he doesn't foresee there being a mass market for 5G consumers in Germany until "the mid-2020s." He considers the network operators' "moaning" and all their lawsuits over frequency costs and conditions to be excessive. "Currently, mobile communications in Germany generate annual sales of around 25 billion euros," Gerpott says. "Assuming a service life of around 20 years, the operators would have to invest around 1 percent of that in frequencies. My sympathy is limited."
Jochen Homann, too, has managed to keep his cool. Preparations for what is sure to be a circus of an auction continue unabated. Homann is 66-years-old and has experience as a state secretary under four different government ministers. This will be his last official auction. "If we're being attacked from all sides like this, you know we've done something right," he says. At the last auction in 2015, there were 180 rounds of bidding. Each round lasts no longer than an hour. To be on the safe side, Homann says, his people could keep the artificial dead zone in Mainz-Gonsenheim up and running for quite a while.