5G auction starts with delays, rebates and the complaint of small operators to Competition

Like investors yearning for the last 17th century Flemish painting to be discovered, Telefónica, Orange and Vodafone will participate in a long-awaited auction starting this Tuesday. Although in this case it will not be a coveted painting, nor will it be held at Christie’s or Sotheby’s. It will be the radio spectrum in which much of the 5G supply will be developed in the coming years and the auction will be led by the Ministry of Economic Affairs. But the resulting figure will be in the millions. The starting price of the ‘works’: 995 million.

The 5G faces the year of its commercial take-off among investors’ doubts about its usefulness in the short term.

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Finally, this July 20 begins in Spain the 5G auction, which has already been held in other European countries and that comes with delay and some controversy. In the operation, the Government seeks to award the 700 MHz band that will serve as the basis for most of the services that this new connectivity technology will offer to the market, especially business, but also residential. Releasing this spectrum last year forced all households to retune DTT, which moved to other frequencies. In this case, it is expected a faster auction than in other countries, such as Germany where it lasted for months, and the final result could be known this week.

The auction was initially going to be held last summer. It was the date marked for some time by the sector to bid for these packages of frequencies. But, as in everything, the pandemic forced to delay the plans. Nor did it arrive in the first quarter of the year, when the government proposed a new date. It will finally be from this Tuesday when the auction of the seven packages that will be awarded for 20 years, extendable for another 20 years will be completed.

The date has not been the only one that has changed. Also the price. The Government initially announced that the starting price of the auction was going to be 1,170 million euros. This was stated in the public consultation that was carried out on the process. However, this price caused recurring complaints among operators who considered the initial amount too high, as they understood that it was going to make the final bill more expensive. In the conversations that took place during that process, the Ministry ended up accepting a reduction in the price of 15%, up to 995 million euros. There will be seven blocks ranging from 8.5 million to 350 million start-up.

But although the price was lowered, finally only three companies in the sector have decided to participate in the auction. The big three. Telefónica, Orange and Vodafone. It is worth remembering that 5G is already a service that is commercialized in the market, since two other minor auctions have been held previously. One, was held in 2018 and another, last December. Thanks to this sale, different companies have been launching 5G services for customers with compatible devices over the last few months.

MásMóvil will not bid. The company owned by KKR, Cinven and Providence funds has cemented its fourth position in the sector and will strengthen it in the coming weeks when it takes over the fifth, Euskaltel. The group launched a bid for 2,000 million for the Basque company, with strong presence also in Galicia and Asturias. But it will not be in this auction. The group understands that it already has enough spectrum – it participated in 2018 – to provide service to its customers and also considered that the high starting price of the current bids did not come out on account.

Those that will participate, the three big telecoms, assume different commitments when participating in the auctions. They have the obligation that the 5G reaches about 150 of the largest towns in Spain. Also certain strategic infrastructures, such as the country’s main airports, ports or highways. That is to say, at this stage, the 5G is not yet given priority to reach the entire territory, but rather the main towns and infrastructures, on the basis of which its implementation will be developed.

However, this situation, together with other requirements of the process, has raised criticism from small operators, focused on the local and regional market. These companies, gathered in the employers’ association Aotec, have filed a complaint with the National Commission for Markets and Competition against the specifications of the 5G auction in Spain. The association justified the claim that a “serious discrimination” was taking place, both territorially by “the limited territory in which coverage is required”; as for competition, which receives “a hard blow” since they understand that it leaves out companies in rural areas that will have no guarantees of access to mobile connectivity.

These companies understand that the auction benefits large operators, having restricted the obligations to offer services to other operators. “The large operators during the last twenty years have abandoned small municipalities to their fate in terms of telecommunications,” say the small operators, pointing out that they are the ones who have developed the arrival of fibre optics to less populated areas.

Complaints from the big telecoms

The operators that do participate in the 5G auction do not arrive at the bids at the best of times. The three big companies in the sector have suffered during the last three years, since the first auction, increasing pressure from small operators, which have ‘stolen’ hundreds of thousands of customers through a major price war in which they have had no choice but to end up participating with their second and third brands.

It is estimated in the sector that in order to implement 5G in Spain, investments of around 5,000 million euros will be necessary. This situation has led the big telecoms to make a common front -not only in Spain, but also at the European level- against competition rules. These companies understand that it has encouraged the emergence of small operators that compete on price and erode their revenue base, while the large ones are the ones that must undertake investments in infrastructure, as is now the case with 5G. For this reason, they have repeatedly requested financial aid and tax breaks for participating in its development.

The Government has placed the 5G as one of its flags within the plan to digitize the economy. The Ministry has estimated the investment needed to implement 5G in the country at 2,000 million euros. To finance this amount, the Executive has traced to devote 1,500 million euros from the European aid plan. “5G technology is expected to have a major impact on the economy and job creation, as it will enable the development of applications that will change the way products and services are produced, distributed and consumed,” the government said in announcing the date for the auction.

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