German WiMAX License Auction Details

Next Tuesday, December 12th 2006, the bidding for WiMAX licenses in Germany will finally commence. Updates throughout the bidding process will be published life on the Internet at the Website of the Bundesnetzagentur. Here are some facts behind the auction:

Technology Neutrality

The licenses being auctioned are not reserved for a special technology. Thus, the title of this entry is not quite correct. However, it is expected that WiMAX will be the technology used by companies interested in this spectrum to provide broadband wireless access.

Bidders

It’s not quite clear yet who is going to bid for the licenses, it seems to be a well kept secret by the Bundesnetzagentur until Tuesday morning. The Deutsche Breitband Dienste GmbH, also known as DSLonAir, has publicly stated that they will participate, so at least one contender is known. They’ve also publicly stated that they are interested in getting a nationwide license.

Regional Licenses and Coverage Commitments

In total, four licenses will be auctioned for 28 regions. In order to provide nationwide service a company needs to get a license in all regions. The starting price for a region depends on the population density and prices vary from 300.000 euros to about 1.8 million euros per region. To get a license for all regions the starting price of the auction is about 16 million euros. As there are four licenses per region, the minimal revenue for the state, should all licenses in all regions be taken, is 64 million euros. Licensees are required to cover at least 15% of the towns in each region by the end of 2009 and 25% of the towns at the end of 2012.

Frequency Bands Being Auctioned

Each license covers a paired 21 MHz channel, i.e. two 21 MHz channels with a duplex distance of 100 MHz between 3410 – 3494 MHz and 3510 – 3594 MHz. It is left to the digression of the company using the frequencies to use frequency division duplexing (FDD) systems which requires paired spectrum or if time division duplexing (TDD) is used which does not require paired channels. According to a recent Intel Whitepaper (page 8), WiMAX 802.16e will use TDD in this frequency band. The white paper also states that in this frequency band channel bandwidths of 5 and 10 MHz are specified. This means that a licensee can operate four independent channels with one license.

Auction Result Depends on Competition

As except for one company the names of the bidders are not yet known it remains to be seen how many of the interested parties will go for a full nationwide coverage and which are only interested to cover certain regions. As there are four licenses per region at least five of the six companies would have to bid in each region in order to significantly increase the minimal price. So what would be a price for the licenses which would still be realistic? Well, let’s make a quick and dirty calculation here: Let’s assume all four licenses are awarded in all regions and the companies are able to get 10% of the population of Germany, which would be 8 million people, to subscribe to services over a period of 15 years. Let’s further say that licenses should cost no more than 1 euro per subscriber per month. Let’s also leave all other complicated stuff like interest, network ramp up, etc. out of the equation for the moment. Thus, the maximum sum bidders would be prepared to pay equals 8 million subscribers * 1 euro * 12 months * 15 years = 1.4 billion euros. This would be 360 million euros per licensee. Sounds like a huge sum, but compared to the 50 billion euros spent for UMTS licenses it would still be a bargain.

Of course the three big unknowns in the equation are if there is enough competition to get such a sum, if companies are willing to shed such a lot of money up front and of course if WiMAX networks will be attractive enough to get a penetration of 10% of the population. Much depends on how these networks will offer their services. For more on this, take a look on my entry on "WiMAX Culture: Hotspot or 3G".