• 1&1 is building Germany’s fourth 5G network, but progress has been slow
• In the meantime, mobile competition is increasingly fierce in the market
• Now, United Internet plans to boost its stake in 1&1 to 90%
• It has already taken out an €800m loan to fund the 5G network construction

The subject of consolidation within European telecom markets cropped up again this week as telcos published their first-quarter results and highlighted the increasingly competitive nature of fixed broadband and mobile segments.

Emilio Gayo, in the hot seat during Telefónica’s Q1 earnings call for the first time in his new role as chief operating officer, remarked "it’s true that we believe Europe needs large telecommunication and technology companies, and market consolidation is needed to have a strong European telco sector.” 

Regarding any potential consolidation in Germany, where there are still four mobile network operators (MNO), Gayo emphasised that the priority here is to “grow our business organically. We see ahead opportunities… leveraging our network and our brands”. 

However, he could not resist having a dig at 1&1, the wannabe fourth 5G operator in Germany that has long been a thorn in the side of the existing three MNOs in the country. “In Germany, there are already three very good mobile networks and we don’t see much space for a fourth one,” said Gayo. 

Telefónica has, of course, been dealing with the fallout of losing a network access contract with 1&1 in 2023, when the market challenger reached an agreement over a long-term national roaming agreement (NRA) with Vodafone Germany. Since then, Telefónica’s O2 unit has been seeking new wholesale deals to help fill the void. 

Deutsche Telekom (DT) CEO Tim Höttges has previously suggested that 1&1 should be forced to deploy its 5G network nationwide without help from others, and has made no effort to disguise his bewilderment that Vodafone entered into such a deal. 

Höttges touched on this topic again during DT’s Q1 press conference this week, when he observed that competition in the German mobile communications market “has become increasingly fierce over the past two years, especially after one of our competitors decided to switch network partners for its services”. 

“Telefónica is influenced by the 1&1 substitution. I mean, this insane deal that has been made concerning wholesale is, of course, currently leading to enormous distortions between Telefónica and Vodafone with 1&1. I don’t know whether the customer benefits from this. I also don’t know whether the companies benefit from this. I believe that this will have a negative impact on their investment activities in the long term,” he commented. 

Slowly does it?

As for 1&1, there have been a number of recent developments that suggest some shifts in strategy behind the scenes. For instance, both 1&1 and parent company United Internet lost their CFOs earlier this year, with Sascha D’Avis replacing Markus Huhn at 1&1 and Carsten Theurer taking over from Ralf Hartings at the parent firm. 

In addition, United Internet has just announced plans to increase its stake in 1&1 from just over 80% to up to 90% in order to strengthen its voting majority. Notably, this follows the taking out of a loan for up to €800m from the Japan Bank for International Cooperation to finance the future construction of 1&1’s 5G network. 

Overall, it’s fair to say that building a new 5G network based on virtualised Open RAN technology, with support from Rakuten Symphony and Mavenir, has been extremely challenging. Initially plagued by delays, which the operator blamed on tower supplier Vantage Towers, 1&1 also continues to suffer from the repercussions of a major outage on its 5G network in May 2024.

During the 1&1 Q1 earnings call this week, D’Avis conceded that the operator saw a decline of 20,000 mobile contracts in the first three months of the year, and expects churn to continue to rise in the coming two quarters before settling down at the end of the year. 

D’Avis said this is in line with expectations as 1&1 continues to migrate customers from the Telefónica network to its own 5G network. Around 50,000 customers are now being moved over per day – at the end of March, 1&1 had 6 million subscribers on its own network. 

At the same time, 1&1 still only has around 1,000 antenna sites in operation, although it recently indicated that 6,000 antenna locations are in operation or being actively developed. According to D’Avis, some 200 to 300 sites will be added per quarter, with the expectation that 2,000 sites will be activated by the end of the year. “We will see 25% coverage at the end of this year. It’s a tough target, but we think that we can achieve that,” he said. 

While 1&1 is likely to have found the rollout harder than it expected, it received some good news recently. For instance, Germany’s Federal Cartel Office (Bundeskartellamt) found that 1&1 had good reason to blame Vantage Towers and Vodafone for its slow 5G rollout progress over the past few years. A final decision on the matter is expected to be issued in mid-2025.

In addition, while the Federal Network Agency (Bundesnetzagentur) ruled in favour of extending 800MHz, 1800MHz and 2.6GHz licences acquired in 2010 by DT, Telefónica Deutschland and Vodafone Germany for five years, the operators still have to share some sub-1GHz spectrum with 1&1. If 1&1 is not granted access to the low-band frequencies by 1 January 2026, the agency reserves the right to enforce access. 

In the meantime, it remains to be seen if and when German customers will have four fully fledged mobile networks to choose from, and how the market will continue to evolve from a competitive standpoint.

- Anne Morris, Contributing Editor, TelecomTV