German Airwave Bids Top $5 Billion to Exceed 2010 Auction

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Deutsche Telekom AG, Vodafone Group Plc and Telefonica Deutschland Holding AG bid a total of 4.52 billion euros ($5.1 billion) for German airwaves three weeks into an auction, surpassing the total the government received from a sale five years ago.

Into the 167th round of bidding, the value of spectrum is going up as the popularity of data-hogging smartphones and tablets increases and everything from cars to refrigerators get connected to the Internet. In 2010, in the previous auction, the government raised 4.38 billion euros from four buyers.

The auction is drawing higher bids than expected, mainly driven by demand in the 1.8 gigahertz band, where Telefonica Deutschland has a stronger position than its rivals and has the most to lose, said Guy Peddy, an analyst at Macquarie Bank Ltd.

“What you are seeing is Vodafone and Deutsche Telekom trying to incrementally either retain or slightly improve their spectrum position,” Peddy said by phone. “Telefonica Deutschland has good frequency, it has a strong existing spectrum position.”

The three carriers, the only eligible bidders, are vying for four types of frequency. The 700 megahertz band is for sale to the carriers for the first time, and they are also seeking to renew or add licenses in the 900 megahertz, 1.5 gigahertz and 1.8 gigahertz bands. The government publishes bids on its website as the auction progresses.

Most of the bidding has so far focused on the 900 megahertz and the 1.8 gigahertz bands. On Wednesday, the carriers raised their offers for the 700 megahertz band for the first time, after giving the minimum bid on the first auction day.

Competitive Advantage

Deutsche Telekom shares slipped 0.5 percent to 15.11 euros at 9:38 a.m. in Frankfurt. Vodafone lost 0.2 percent to 230 pence in London, and Telefonica fell 0.4 percent to 12.64 euros in Madrid.

“It seemed so far that the auction would be relatively cheap -- since today chances are higher that it could become expensive,” Wolfgang Specht, an analyst at Bankhaus Lampe, said on Wednesday. “Operators might have returned to 700 megahertz band because holding good assets in low frequency bands could be the decisive competitive advantage in the future.”

The 700 megahertz band enables stronger coverage in cities and indoors. Providing a good service in urban markets is crucial as the carriers compete for new customers signing up for video and music services.

Unlike the bands that are already assigned to carriers, the new 700 megahertz bands won’t be immediately available because they are being used by television broadcasters. Phone carriers will get access to the bands once the television licenses expire, starting next year.

The auction will go on until the government receives no more bids.

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