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As first 700MHz auctions begin, is Europe ready to get out of the mobile slow lane?

Germany has fired the starter's gun on Europe's sell off of 700MHz spectrum, but will it be enough to persuade the continent's mobile users to switch to LTE?
Written by Sara Zaske, Contributor

After 181 rounds of bidding this summer, Germany became the first country in Europe to auction off its 700MHz spectrum, in a move meant to help boost the expansion of LTE networks in the country.

Following Germany's example, France has now started an auction that includes the 700MHz band, while Sweden and Finland are expected to launch their own sell-offs by 2017. More countries throughout the European Union are likely to follow before too long, but whether such auctions will help spur 4G adoption on the continent is open to question.

Europe lags behind the US in 4G penetration: according to industry group the GSMA, about 17 percent of mobile users in Europe are on 4G, compared to the US where more than 40 percent of connections use the technology and 4G coverage stands at 97 percent.

Part of the problem in Europe has been the slow progress in freeing up 700MHz spectrum, a band that's useful for deploying LTE in rural areas but which has also traditionally been used for analogue TV signals in many countries. (The US made the switch to digital TV early and auctioned off the freed-up spectrum to mobile operators in 2008. Europe, on the other hand, is still working on it.)

Within Europe, Germany is slightly ahead of the curve with 19 percent of users now on 4G, a figure that's projected to grow to 67 percent by 2020. Germany's sell-off of the 700MHz band was hailed as starter's gun for the wave of auctions pushed by the EU in its Digital Agenda.

Despite the hype, opening up the 700MHz band will not be "the miracle solution" for all of Europe's digital problems, according to Wladimir Bocquet, senior director of spectrum policy for the GSMA, but it is an important milestone in achieving the goals set out by the EU.

Notably, in addition to the 700MHz band, Germany put portions of the 900MHz, 1500MHz, and 1800MHz frequency bands up for auction -- all of the spectrum it could free up -- at the urging of the GSMA. "All the bands which are available today have been licensed in Germany," said Bocquet. "They put the maximum supply on the market to respond to demand."

The high price of competition

Germany's auction soared well about the reserve price of €1.5bn set by the country's telecom regulator the Bundesnetzagentur, eventually reaching €5.08bn. After 16 days and 181 rounds of bidding in secure rooms at the Bundesnetzagentur offices, the 700MHz band was evenly split between the country's three major operators. Telefonica, Deutsche Telekom, and Vodafone.

Vodafone spent the most -- nearly €2.1bn -- and walked away with more of the 1800MHz band (also important for LTE) than its competitors.

"It 's not going to change the competitive dynamics of the market," said Dario Talmesio, a practice leader specializing in Europe at analyst firm Ovum. He noted that Telefonica and Deutsche Telekom already have a good share of the 1800MHz band and that the biggest shakeup in the German market had happened recently when Telefonica took over E-Plus from KPN last year, shrinking the market from four main players to three, which all have a fairly even amount of spectrum.

Talmesio did say that the coming 700MHz auctions in other countries may have more impact where the markets are less balanced: for example, in France's upcoming auction, the challenger Iliad - which operates Free Mobile - could strengthen its position against the three leading players: Orange, Bouygues Telecom, and Numericable-SFR.

The hard sell

The availability of the 700MHz band is only one problem that has been hampering the spread of LTE in Europe, according to Mark Colville, analyst at Analysys Mason.

Another hurdle is that the current 3G networks in Europe are relatively good, at least compared to the US' before the spread of 4G, which means the next generation of technology may be a harder sell for 3G mobile users in Europe happy with their existing services.

Operators also can't easily point to many amazing innovations that users can only enjoy with 4G LTE, because they have yet to be developed. "As with any new technology, it's a bit of chicken and egg problem," Colville said.

In Germany, when the new spectrum becomes available, consumers interested in 4G LTE will see an improvement, not so much in quantity but in quality, according to Colville. "The portion of people covered now will be covered with a much more reliable service following rollout - that's where the difference comes in," he said.

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