Mobile Communications Market 2023: 5G Conquers Mass Market, 1&1 Misses Targets

Deutsche Version: Mobilfunk Report 2023 | Versión en español: Informe Móvil 2023

Who is currently number one on the German mobile phone market? Curiously enough, all three German network operators have a reasonable claim to this title.

In terms of mobile revenues, Deutsche Telekom is clearly ahead. In Q2 2023, it not only reported the highest mobile service revenue (€1.632 billion), but also a more than solid year-on-year growth (+2.1%).

But is Telekom also the German network operator with the most customers? At first glance, it may seem so; after all, it officially carried 57.695 million mobile customers on its network by the end of Q2 2023. This is significantly higher than the reported customer numbers of Vodafone (30.704 million) and even Telefónica Deutschland (44.591 million).

However, Telekom does not distinguish between traditional end users and M2M SIM cards (machine-to-machine), which are used for IoT applications (Internet of Things). These are currently selling extremely well in the automotive industry, among others.

However, if you look at the total number of SIM cards issued, Vodafone is in the lead. If the IoT sector is included, Vodafone now has 75 million SIM cards in its own network in Germany. Due to its comparatively weak M2M segment (only 1.794 million active cards), o2 falls back to third place in this comparison (44.591 million SIM cards in total).

This is why Telekom is the only network operator still reporting growth in the prepaid segment. This only exists when the booming M2M sector is taken into account. With normal consumer and business customers, on the other hand, there has benn an extraordinarily strong shift away from prepaid to postpaid fixed-term contracts for some time now.

The high-revenue postpaid customer contracts are therefore particularly important. Telefónica leads the field here. At the end of Q2 2023, the o2 network counted around 27 million postpaid subscribers. By comparison, Deutsche Telekom had a total of 24.4 million and Vodafone 19.1 million postpaid contracts.

The strong growth in the postpaid segment is currently being driven primarily by the network operator's large core brands. The premium providers' more-for-more strategy seems to be paying off: They are increasingly opting for more expensive, but higher-quality tariffs with higher data limits and additional features.

In the meantime, o2 has also fully committed itself to this approach. In April, the provider successfully replaced its popular o2 Free tariffs with the new, optimised o2 Mobile tariff portfolio.

So far nothing unusual - Telekom and Vodafone already took this step last year with their "Magenta Next" and "GigaMobil" tariff initiatives. Telefónica, however, has also implemented the more-for-more principle with its secondary brands and partner brands. In the first half of 2023 alone, new tariffs were launched not only at o2, but also at the secondary brand Blau, the ethno brands Ay Yildiz and Ortel Mobile, as well as the partner brands Tchibo mobil and Aldi Talk, among others.

Another major trend in the German mobile communications market in 2023 is partner card offers. These allow contract customers to provide friends and family members with discounted additional tariffs that are linked to the main contract. Prominent examples are the Telekom MagentaPlus Karte, Vodafone's FamilyCard and the Congstar Partnerkarte.

Such combined offers are not really new, but Deutsche Telekom, for example, has deeply integrated its new MagentaPlus card into its existing MagentaMobil tariff offer. In addition, the partner card offers from Telekom and Vodafone have both been the focus of large cross-media advertising campaigns this year.

Discount brands are also making efforts to generate additional contracts from their existing customer base. To do this, they rely primarily on "refer-a-friend" programs. These usually give participants a small bonus discount or data package for each friend invited. Under names such as "Fraenk for friends", "Congstar Freundeskreis" or "SIMon mobile Freunde werben", these referral offers can now be found at a large number of smaller providers.

The 5th generation of mobile communications has been rolled out faster than any other network standard before. Only four years after its official launch, 5G mobile communications have already become part of everyday life for many users.

Der Netzausbau ist dabei aber nicht der einzige entscheidende Faktor. Dazu gehört auch, dass der 5G Zugang mittlerweile fester Bestandteil der Mobilfunktarife aller großen Netzbetreiber ist. Aber nicht nur das: Anders als beim Vorgänger LTE haben die Betreiber ihr 5G Netz recht schnell auch für alternative Angebote geöffnet. Schon im Juni 2022 etwa hat Vodafone sein gesamtes Prepaid-Portfolio 5G-fähig gemacht. Die Telekom wiederum bietet seit Juni 2023 auch über ihre Zweitmarke Congstar 5G an. Im Juli 2023 schließlich konnte ALDI Talk als erster deutscher Prepaid-Discounter mit 5G Angeboten im o2 Netz durchstarten.

This shows a clear difference between the mobile communications generations: Exclusive access to the fast LTE network was used for a very long time to maintain a strict segmentation between the premium, prepaid and discount market.

Another important piece of the puzzle is the already fairly high penetration of 5G-capable devices. According to Vodafone, around 43 percent of smartphones in its own network already supported the 5G standard in August 2023. A year earlier, this share had been just 26 percent. There is every indication that this share will continue to rise rapidly. According to Telefónica, a full 97% of all smartphones sold by o2 were 5G-capable in Q1 2023.

Of course, the 5G network rollout is also progressing so quickly because the network operators are bound by strict rollout obligations imposed on them by the German Federal Network Agency (Bundesnetzagentur, BNetzA) as part of the 2019 5G spectrum auction. They had two main targets to meet for 2022:

• 100 Mbit coverage of 98% in all federal states
• at least 1,000 active 5G antenna sites in Germany

The large network operators Telekom, Vodafone and o2 have successfully met these requirements. Even though there was a shortage in some federal states, all three were able to report completion shortly before the end of 2022. Measured in terms of population, the operators can now boast nationwide LTE availability of more than 99%. In terms of 5G network coverage, they each achieve over 90% (Vodafone, o2) or over 95% (Telekom).

However, the network operators did not even begin to meet another requirement. Together, they were supposed to close 500 selected white spots by the end of 2022. Each of the three network operators was assigned 167 of these previously underserved areas. Not one of them managed to complete even half of its list of sites.

Due to the non-compliance with this requirement, the BNetzA has initiated fine proceedings against the network operators. Each missing site could incur a fine of up to 50,000 euros. Furthermore, the authority could levy additional penalty payments in the future in the event of further delays.

However, the outcome of the proceedings is uncertain. For example, the BNetzA can only impose a fine if the built-out would actually have been possible at the respective location. Here, the network operators have some weighty arguments on their side.

One important point: The exact list of the planned expansion areas was not sent to the network operators until November 2021. This simply left too little time for the difficult search for locations and the sometimes lengthy approval processes. According to Telefónica Deutschland CEO Markus Haas, especially in rural areas, lead times of about three years are to be expected before new mobile network sites can be put into operation. And that is why the work is ongoing: Despite further progress, still only a portion of the 500 affected areas are covered yet.

While the three established network operators are lagging behind in some of their rollout obligations, the newcomer 1&1 is facing far greater problems. After the 2019 frequency auction, the BNetzA imposed a requirement to have its first 1,000 5G sites in operation by the end of 2022. The United Internet subsidiary has failed to meet this target. At the turn of the year, the new 1&1 mobile network comprised just three active sites.

In fact, the antenna sites are the main problem for 1&1, because much of the rest of the infrastructure for the upcoming mobile network is already in place. By mid-2023, 1&1 had thus put two of its four planned core data centers and 22 of 24 decentralised data centers into operation and connected them to further regional centers. However, according to 1&1, the very network partner chosen by United Internet as the main supplier for antenna sites has not fulfilled its obligations, thus causing the immense delays.

An explosive detail: The service provider responsible, Vantage Towers, is a subsidiary of Vodafone. 1&1 therefore accuses the competitor of deliberately slowing down the expansion project. Following an official complaint by 1&1, the Federal Cartel Office opened an investigation in June 2023 to clarify whether such deliberate obstruction had indeed taken place. In the meantime, the BNetzA is looking into potential fines for failing to achieve the agreed expansion targets - fines of up to 50,000 euros per missing antenna site are also being considered here.

A close cooperation between 1&1 and Vodafone is actually difficult to imagine under these circumstances. All the more surprising was the announcement in August 2023 that Vodafone was to become 1&1's new national roaming partner. By October 2024 at the latest, 1&1 wants to have completed the switch from its previous roaming partner o2 to Vodafone. Unlike the deal with o2, the national roaming provided via Vodafone will also include the 5G mobile standard. This could a major blow for o2, as the former network partner is likely to lose considerable revenue as a result.

National roaming is extremely important for 1&1. This ensures that 1&1 mobile users also have access to 5G in places where the 1&1 mobile network still has gaps. And there will still be plenty of them in the foreseeable future. Thanks to a new rollout plan, however, the rollout of the 1&1 5G network is finally set to pick up speed. 1&1 is now targeting 500 completed antenna sites by September 2023. By the end of the year, the 1,000 sites originally planned for the end of 2022 should finally be in operation. Over the next two years, 1&1 aims to achieve a 5G network coverage of 25% and 50% respectively.

Due to the major delays in setting up the network infrastructure, 1&1 has again had to postpone the launch of its new mobile tariffs on its own network. The launch date has therefore been moved from summer 2023 to fall 2023. So if everything goes according to plan from now on, Germany will finally have a fourth mobile network operator again this year.