The billion-dollar game: 25 years of the UMTS auction

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At 99,368,200,000.00 German marks, it was finally over. After two and a half weeks, the final hammer fell on August 18, 2000, at the auction of frequency usage rights for the third generation of mobile communications 3G – or as it was called at the time, Universal Mobile Telecommunications System, UMTS.

Network operators and those who wished to become network operators plunked down the equivalent of 50 billion euros on the table of Federal Finance Minister Hans Eichel (SPD), who was delighted with the “unexpected additional income for the repayment of public debt.” None of the subsequent frequency auctions have reached this historic dimension again.

Trendsetter Germany

It was the first time that usage rights for frequencies were auctioned in Germany. Until then, this had only been an administrative act: the regulatory authority for telecommunications and postal services (RegTP) allocated the frequencies by assignment. State allocation was also common practice in other countries; Belgium also awarded its UMTS licenses in this way.

“An auction is and remains the most suitable and efficient procedure for allocating scarce frequency spectrum for mobile communications,” says Cara Schwarz-Schilling from the Scientific Institute for Infrastructure and Communication Services (WIK). “Tendering procedures and beauty contests, on the other hand, remain non-transparent.”

The US regulatory authority, the Federal Communications Commission (FCC), auctioned off spectrum for the first time in the 1990s. In Europe, the format became fashionable with the increasing liberalization of the telecommunications markets. In April 2000, the British auctioned off their UMTS frequencies for the equivalent of around 38 billion euros.

“At the time, the German regulatory authority was one of the pioneers in the use of simultaneous multi-stage auctions, which were subsequently used by numerous other regulatory authorities,” explains Schwarz-Schilling. “The auction design used in Germany has also proven to be an efficient frequency allocation procedure in terms of regulatory economics in subsequent frequency auctions in Germany, particularly the 5G auction.”

New territory comes to cell phones

The fact that the bidders at the German auction reached such dizzying heights is partly due to the spirit of optimism that prevailed at the time. This Internet thing was new territory, and with UMTS it was to be available on every cell phone. The fantasy was almost endless, but reality would only catch up with it much later.

“The UMTS auction ushered in the age of mobile Internet in Germany. The technological breakthrough was significant, but the financial consequences were burdensome,” says Valentina Daiber, Head of Legal &. Corporate Affairs at Telefónica Deutschland. “High-frequency costs due to auctions tie up investment funds for years, which would be better spent on network expansion and thus on the digitalization of our country.”

For international competitors, the auction was a gateway to the lucrative German market, which had previously been neatly divided up by the RegTP between T-Mobil, Mannesmann D2, E-Plus, and Viag Interkom. In addition to the top dogs, Mobilcom (together with France Telecom), Debitel, and Group 3G of Telefónica and Sonera, which wanted to establish a joint network operator with Quam, also applied.

After other interested parties dropped out shortly before the start of the auction, seven bidders applied for a total of twelve frequency blocks of 5 megahertz each. Each bidder was allowed to bid for a maximum of three blocks and received a license if they successfully bid for at least two blocks.