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German 3G Auctions Not Good News For Everyone

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Reuters reported last week that Germany’s governing body will hold auctions for new 3G licenses, allowing new carriers to bid alongside Germany’s four major carriers for new bandwidth in the ~1800MHz and ~2600MHz spectrum. This is great news for Germany, German mobile communications, and other carriers looking to enter the German market! Germany will be allowing more competition to influence pricing. More of the population will have more access to mobile broadband. Carriers experiencing capacity limitations or lacking coverage in the traditional 900MHz and 1800MHz frequencies can acquire bandwidth to alleviate network issues. International or fledgling carriers can seek opportunity by investing in bandwidth to get a figurative foot in the door of the marketplace.
But will there be such a bounty of benefits for the consumer? For recent insight, just look back to the United States, 2006. Then, the United States Federal Communications Commission held its own supplemental 3G spectrum auction, adding the 1700MHz and 2100MHz, or Advanced Wireless Services (AWS) frequencies. These were new frequencies beyond the then traditional 850MHz and 1900MHz frequencies.

With the incumbent 3 carriers laden with the traditional spectrum, they invested relatively little in the new spectrum. The majority went to T-Mobile USA, the spawn of a large global parent company. They instantly became the new kid on the block as a second GSM competitor to challenge what is now AT&T. They immediately began building their broadband network.

After 2 years of equipment installation, network testing, and bureaucratic foot dragging, T-Mobile USA’s 3G network is now coming online, adding more markets at a tremendous rate. Subscribers across the country are elated. They were finally able to get speedy data connections from their carrier. But has all of the patience spent waiting for mobile broadband really paid off for T-Mobile’s customers? And has the expected competition materialized or managed to lower prices?

Right now, it’s too early to completely answer. Previously the only US GSM 3G provider, AT&T has little motivation to lower prices just yet. This is because even though T-Mobile USA’s competing broadband network is now online, hardly anyone can use it. The reason they can’t is few devices that support T-Mobile USA “exotic” 1700MHz and 2100MHz AWS frequencies are available. A couple have been announced, including the first Android-powered device, the HTC-fabricated G1, and Sony Ericsson’s Xperia X1, but have yet to be seen in American stores. All of the top unlocked SIM-free devices aren’t great options for T-Mobile USA subscribers, since they only support the traditional 3G frequencies occupied by incumbent AT&T, allowing only slower EDGE data network connections. This lack of compatible devices stymies the adoption rate of the new broadband network, funnels the demand to the incumbent, creates unintentional hardware fragmentation, and promotes defections to that incumbent from impatient subscribers anxious to access a mobile broadband data connection.

Apparently, manufacturers are reluctant to allocate finances to the production of relatively small roll-outs of specially configured devices without a carrier retail agreement. The common sense idea to incorporate multiband WCDMA radios sounds simple enough at first glance. This is the route Sony Ericsson, a T-Mobile USA retail partner, has taken with its announced Xperia X1. But most device manufacturers aren’t willing to carry so much risk. The biggest expense for device manufacturers are software licenses and communication radio hardware. Each added frequency adds considerable cost to each device. This is a risky proposition for any manufacturer of such large scale, since raising the cost of a device just to support an unproven network of a relatively small number of subscribers could be detrimental in price sensitive markets. This, in turn, means the radios to transmit and receive the AWS signals are also in such low production to be price prohibitive in some configurations.

So feeding the demand for devices during the launch of a network supporting new frequencies is a crucial step that must be planned well ahead of time. Failure to do so could slow adoption of the new network and increase subscriber turnover. Its easier to suggest than to implement, however.

In light of all the recent history, a lesson has surely been taught. The manufacturers need more incentive to increase their costs to properly serve German consumers. Whether by short term carrier profit sharing agreements, governmental regulation, or manufacturer commitment, some way to insure the production of 1800MHz and 2600MHz compatible devices must be secured as early as possible. Delivery of these devices in concert with the network launch must be carefully planned as well. So while industry experts sing the praises of the benefits of the upcoming bandwidth auctions, be clear there won’t be complete sunshine and rainbows in store for everyone. Germany should tread lightly, and plan for a few stumbling blocks, a little fragmentation, and a few inconveniences.

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By , Senior International Correspondent on Oct 3rd, 2008 GMT +2

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