Telefonica, 1&1 Drillisch finalise Germany roaming deal

Telefonica and 1&1 Drillisch appear to have finally made friends in Germany, sorting out the finer details of a deal that should end their dispute on the cost of national roaming.

Relations between the pair thawed back in February, when 1&1 Drillish agreed to a new roaming offer put forward by Telefonica Deutschland. Now they have taken their rapprochement a step further, ironing out the T&Cs and inking a long-term deal. Naturally, they have agreed to keep the financial terms of the agreement confidential, but we do know that it will permit 1&1 Drillisch to use Telefonica’s network for a five-year period (starting retroactively in July 2020), with the possibility to be extended twice for two further five-year periods, the second being subject to further negotiations.

“As planned, the companies are putting their long-term partnership on a new contractual basis with the signing of this agreement. With the NRA [National Roaming Agreement] Telefónica Deutschland is securing long-term valuable revenue streams,” Telefonica said, in a statement.

Since we are not privy to the terms of the new deal, it’s difficult to say which company – if either – “won” in the roaming dispute that dates back the best part of a year.

1&1 Drillisch threw a very public tantrum last September, downgrading its earnings outlook on the back of an alleged “substantial price increase” on the part of its host network that came into effect in July 2020.

The whole sorry saga is mired in legalese and a lot of ‘he said, she said’, but essentially 1&1 Drillisch believed Telefonica was not acting within the terms of its E-Plus acquisition back in 2014, which required it to lease capacity to MVNOs at certain price levels to ensure continued competition in the market, while Telefonica seemed to think that upping prices was now fair game, half a dozen years on.

Telefonica made a new roaming offer in October but 1&1 Drillisch – which is in the process of setting itself up as an MNO, having acquired spectrum of its own in the much discussed 2019 German 5G auction – was still not satisfied and complained to the European Commission. Following an investigation, the Commission in February ruled that the new offer was, in 1&1 Drillisch’s words, “not fully in line with Telefónica’s commitments under the EU merger clearance decision,” the clearance of the E-Plus deal, that is, and insisted the Spanish operator made an improved offer. It subsequently did just that and 1&1 Drillisch accepted it; this latest announcement represents the ironing out of the finer details and signing a contract.

So now 1&1 Drillisch can get back to the greater task of setting itself up as Germany’s fourth national mobile operator. The deal with Telefonica sets out the terms of its customer migration to its own 5G infrastructure, but it will require some sort of roaming on its rival’s infrastructure for many years to come. Rolling out mobile network is not cheap, but relying on roaming always impacts on a telco’s ability to make money: when it published full-year 2020 financials, 1&1 Drillisch’s parent company United Internet reported that Telefonica’s price hike between July and year-end had hit its EBITDA to the tune of €34.4 million, but said it expects to offset that in its first-half numbers for 2021.

Regardless of the terms of its new deal with Telefonica, it is in 1&1 Drillisch’s interests to get on with building out its own network.