1&1

Key topics: 1&1:Quarterly Results | 1&1:5G Infrastructure | 1&1:Spectrum Allocations | 1&1:Regulatory Environment | Assessment of Open Ran | Telecommunication Industry | 1&1:Management | 1&1: Analysts Opinions | 1&1:Customer Migration

See also : 1&1: Sheet | 1&1:Sources | 1&1:Discord | 1&1:Questions

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Summary of the key topics

1&1 5G infrastructure

1&1 is a German telecommunication company that is currently building its own 5G network based on OPEN RAN. Once it launches its network, it will become the fourth MNO in Germany, marking a change in its business model, which has been relying on a wholesale agreement, called MBA-MVNO with Telefonica. The wholesale agreement grants 1&1 up to 30% hosting capacity in Telefonica's network. To ensure better coverage for its users once it launches its network, 1&1 entered into a long-term national roaming agreement (NRA) with Telefonica in May 2021. The NRA provided for price protection until June 2029. Thereafter, Telefonica will be obliged to charge non-discriminatory prices. Also, the NRA gave 1&1 users non-discriminatory access to Telefónica's 2G and 4G mobile network in areas that won't have 1&1 5G coverage yet. The main disadvantage of this NRA was the fact that from January 2026, access to 4G national roaming in Telefónica's network in certain urban areas covered by 1&1 5G will be limited to up to 50 Mbit/s. This would not have been a big deal had 1&1's network buildout gone according to the plan. 1&1's network buildout suffered significant delays due to supply chain problems encountered by its largest partner, Vantage Towers. As a result, 1&1 failed to meet its 1,000 antenna sites obligations by the end of 2022. At the end of Q3 2023, 1&1 had only managed to construct 503 antenna sites, of which only 60 were active. This presented a risk that the 1&1 network will likely be poor once it's launched. To mitigate this as well as the risk of having limited access to Telefonica's 4G network, 1&1 entered into a NRA with Vodafone in August 2023. As a result, 1&1 will not renew its contract with Telefonica in 2026 but the two contracts will have to run in parallel until then. The agreement will grant 1&1 usage rights in Vodafone's 2G, 4G and 5G networks. The terms of the Vodafone agreement are also attractive compared to that entered with Telefonica. For instance, 1&1 will pay a fixed price based on the percentage of Vodafone's network that its customers use. 1&1 applied to the Federal Network Agency for such parallel operations, but a decision on it has not been made yet. Fortunately, on November 22, 2023, 1&1 expanded its contract with Telefonica to include 5G coverage, making the prospected network launch in December 2023 almost a reality.

Spectrum Allocations

It is critical that 1&1 gets the low-band frequency (800 Mhz) to be auctioned in 2024 in order to be able to offer a seamless network experience to its users. This is because a network built on high-band frequencies is incapable of penetrating through walls. If 1&1 is unsuccessful in the 2024 auction, it will have to lease it from other operators. BNetzA is currently considering extending the usage rates of the 800 Mhz by five years and providing the obligation for a national roaming agreement. CEO Ralph Dommermuth said in the Q3 2023 earnings call that they are open to any decision that will provide them with low-band frequency in the right capacity.

Regulatory Environment

After 1&1 failed to meet its 1,000 antenna sites obligations at the end of 2022, the Federal Network Agency launched an investigation to find out if the failure to achieve it was due to 1&1's fault. It is expected that a fine will be imposed on 1&1 by the authority. The amount of the fine as well as the when it will be imposed hasn't been established yet. 1&1 said it would transfer the penalty costs to Vantage Towers.

OPEN RAN

1&1 is building is 5G network based OPEN RAN technology. Open RAN offers many benefits, such as multi-vendor deployments, the use of RIC, visualization, etc. However, it also has challenges, such as integration and interoperability issues. Some industry players believe there is a trade-off between the benefits and costs. The greatest benefit of OPEN RAN is flexibility. With flexibility, operators can protect their investment by deploying a 2G network in areas that don't have wireless networks while deploying 4G or 5G networks in other regions without breaking down the network. Flexibility will also allow the operator to choose when to deploy cloud-native architecture and RIC since they won't have to reap out the network. In general, a lot can be achieved with a flexible RAN. 1&1 doesn't expect any cost-savings from OPEN RAN technology.

Market size

According to GSMA 2022 report, the addressable market for Europe's telcom operators is nearing saturation point. It forecasts that German's telecom penetration will grow from 88% in 2021 to 89% in 2025.

Management

It is impressive what Ralph Dommermuth (CEO) was able to build. He is an important part of the investment thesis.