United Internet share falls: dispute between 1 & 1 and Telefónica escalates

The expansion of a 5G network actually needs cooperation. However, that does not work at all between Telefónica Deutschland and United Internet including subsidiary 1 & 1. The latter accuse the competitor of unauthorized price increases for the use of its cellular network. Telefónica rejects any guilt.

The dispute over the costs of using Telefónica Deutschland's (O2) cellular network by the competitor 1 & 1 Drillisch intensifies and affects both the parent company United Internet and its subsidiary Drillisch. At the start of trading, the two papers rushed into the depths and held the red lantern in the MDax by far.

For the Internet and mobile communications provider United Internet, it fell by 15 percent and for its subsidiary 1 & 1 Drillisch almost 21 percent, while the dispute partner Telefónica Germany saw an increase of 0.8 percent. United Internet and Drillisch had lowered their profit forecasts for the current year and justified this with price increases by Telefónica Deutschland for network capacities.

They accuse the subsidiary of the Spanish group Telefónica of having increased the costs for the use of the mobile network considerably from July before the conclusion of the ongoing negotiations. "1 & 1 Drillisch considers the wholesale prices required by Telefónica from July 1, 2020 to be not in accordance with the voluntary commitments of Telefónica under the approval decision of the EU Commission to merge with E-Plus", it said.

In addition, according to United Internet, the prices are not within the scope of the so-called MBA MVNO contract (Mobile Bitstream Access – Mobile Virtual Network Operator) with Telefónica. The first five-year extension phase has been running here since July, even if there is still no agreement on prices.

The Montabaur-based company United Internet considers the wholesale prices invoiced for July and August to be inappropriate and wants to take action. 1 & 1 is also in exchange with the EU Commission.

In Munich, where Telefónica Germany is based, you see it differently. The company rejects the allegation and sees the price increase covered by contracts and agreements. The prices billed to 1 & 1 in July and August were based on the existing contract for the use of the mobile network. "This contract was extended by 1 & 1 Drillisch in December 2019," said Telefónica Deutschland on request. Therefore this is known to 1 & 1 for a long time.

Just like 1 & 1 Drillisch, Telefónica Deutschland reserves the right to take measures to safeguard its rights. Just like the provision of services, the invoicing is not easy to suspend just because both parties are negotiating a longer-term use under a so-called national roaming agreement. Within this, the use of the mobile network is to be regulated until 1 & 1 itself has set up a powerful 5G network.

United and 1 & 1 adjust expectations

The outcome of the ongoing negotiations also has an impact on the development of a 5G network planned by 1 & 1 Drillisch, United Internet said. Deutsche Telekom, Vodafone, Telefónica and 1 & 1 Drillisch have put billions on the table for corresponding frequencies of the 5G network. Cooperation between competitors is required for expansion, but that was the last issue. Unlike its competitors, the United Internet subsidiary 1 & 1 Drillisch does not yet have its own mobile network. Since some 1 & 1 frequency blocks will only be available in a few years, the company will rent some from Telefónica until then.

Due to the price increase, United expects an operating profit (Ebitda) this year of around 1.18 billion euros instead of the previous 1.27 billion euros. For its part, 1 & 1 is assuming around 600 million euros instead of the previous 684 million. As the company listed in the MDax announced, there will also be significant declines in earnings in the following years if the prices demanded by Telefonica are permanently applicable.

In the course of the requirements for the acquisition of E-Plus in 2014, Telefonica Deutschland had undertaken to sell up to 30 percent of the network capacity to a competitor. The contract with Drillisch enables the conditions to be checked twice a year. The disputes over the conditions have been going on for some time. In contrast to the competition, Telefonica Deutschland confirmed its annual forecast and its medium-term outlook.