Discussion Papers

Jörn Kruse

Frequenzvergabe im digitalen zellularen Mobilfunk in der Bundesrepublik Deutschland
Nr. 174 / Mai 1997


This study is adressing the question, how the remaining cellular spectrum (40 MHz for the DCS-1800 standard) should be allocated. In addition to two GSM operators, T-Mobil (D1) and Mannesmann (D2), and the DCS network E-Plus (E1), a second E-license will be issued. Each of the companies has asked for more frequencies.

The economic problems are related to significant asymmetries due to the step-by-step cellular licensing in Germany. As a result, spectrum auctions (which would generally be the optimal method of allocating frequencies) would not be efficient in this specific case nor would they intensify competition. The main feature of the German mobile market structure is the joint dominance of D1 and D2. Consequently, airtime prices are high and penetration is only moderate, compared to other countries. Due to technical problems associated with 1800-MHz frequencies, a DCS network infrastructure is more expensive and it is difficult to reach a high regional coverage. Their late market entry is another significant competitive disadvantage, especially for E2.

The study concludes that no DCS-1800-frequencies should be allocated to D1 and D2 at the present time. Otherwise, the prevailing asymmetries would be increased, the joint dominance would be maintained for some more years, and competition would be restricted. Average costs of cellular operators decline as their available spectrum increases. The allocation of frequencies should be used to allow the E-network operators to reach competitiveness, for the sake of the consumers.

Different options (which include spectrum auctions) are evaluated. It is suggested that most of the frequencies should be assigned to E1 and E2, such that each commands over 22,5 MHz. The remaining 10 MHz should be reserved for a future allocation precedure which will be designed to create efficiency incentives. Auctions may then be eligible.

Only German language version available.

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