Telefonica eyes excess MasOrange spectrum

News of the negotiations came from Expansión, which cited an unnamed market source as having knowledge of the situation. The telcos themselves have apparently declined comment.

It's a highly credible rumour though. As the paper itself points out, the merger that created MasOrange – a 50:50 tie-up between Orange and MasMovil to create Spain's largest mobile operator by market share, lest we forget – left the new entity with more spectrum than it is allowed under Spanish market regulations.

In order to get the deal past regulators in Brussels, Orange and MasMovil had to sell a portfolio of spectrum assets to Spain's new fourth player Digi Communications, including 20 MHz of 3.5 GHz frequencies. But that still leaves the merged operator with 170 MHz at 3.5 GHz, or 30 MHz more than it is permitted to hold.

In theory, there should be no shortage of interest in the airwaves. But market dynamics mean that Telefonica is the most likely to acquire them.

The incumbent could do with redressing the spectrum imbalance between itself and the new market leader, particularly given its higher-end customer base, including corporate accounts that place a greater strain on its 5G network. At present, Telefonica has 100 MHz of 3.5 GHz frequencies, Expansión says; buying an additional 30 MHz would put it just 10 MHz behind MasOrange.

Vodafone's need is arguably greater, given that it has 90 MHz at 3.5 GHz and could do with expanding its mobile operations to avoid being left behind by the big two. But with its acquisition by UK investment firm Zegona Communications yet to clear regulatory hurdles, the firm is in limbo when it comes to making investments. And with debt an issue for Vodafone Spain, spectrum spending is unlikely to be on the cards.

That leaves challenger Digi, which could doubtless do with boosting its own holding. However, as the paper points out, the big three telcos in Spain would not be keen on any course of action that would strengthen the newcomer, concerns over low prices and hyper-competition still lingering.

MasOrange also has the option to hand the surfeit of spectrum back to the state, although this is a choice it is highly unlikely to make, given that it would receive no financial benefit. As such, the buyer of the frequencies could broker a decent deal, any income for MasOrange being better than none, particularly given that the clock is ticking. Although the merger deal closed less than three weeks ago, MasOrange has just five months to offload the airwaves, according to Expansión.

Whatever the outcome, there are not huge amounts of money at stake here. The closest we have to a benchmark price dates back to a 2021 auction at which 3.5 GHz frequencies generated revenue of €21 million per 10 MHz, which translates to €63 million for the whole package.

That's not small change for a cash-strapped telco, but if Telefonica were to try to drive down the price, Vodafone could find itself back in the running, since MasOrange would rather sell to it than to its closest rival.

But there are a lot of ifs and buts here. And with the prospect of the state extending the five-month deadline for a sale still a possibility, this one is almost impossible to call. The best we can say is that one of Spain's big telcos is likely to pick up new 5G spectrum at a reasonable price in the not-too-distant future.