How Does 1&1 Company Work?

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How does the 1&1 company operate?

1&1 AG, a significant German telecommunications provider, has played a crucial role in shaping Germany's digital infrastructure. As a part of United Internet AG, one of Europe's largest internet companies, 1&1 offers a wide array of services including mobile communications, broadband internet, and cloud solutions to both individuals and businesses. The company's strategic focus remains firmly on the German market, aiming to bolster the nation's digital capabilities and foster innovation within the sector.

A key strategic move for 1&1 was its participation in the 2019 5G spectrum auction, which paved the way for the development of its own advanced mobile network utilizing Open RAN technology. This initiative positions 1&1 as Germany's fourth mobile network operator, introducing a new competitive dynamic to a market previously dominated by three major entities. Despite initial hurdles in network deployment, 1&1's commitment to establishing a fully virtualized, independent 5G infrastructure underscores its forward-thinking approach and dedication to technological leadership.

Understanding the 1&1 company operations and its business model is essential for anyone looking at the German telecommunications landscape. The company's journey, marked by substantial investments in its proprietary network and a comprehensive suite of services, offers valuable insights into market trends. This exploration will cover how 1&1 works, its core value propositions, how it generates revenue, significant strategic decisions, its competitive strengths, and its future prospects in a rapidly evolving industry.

The 1&1 business model is built on providing a diverse range of digital services. For instance, its 1&1 BCG Matrix analysis would likely show strong positions in areas like web hosting and domain registration, where it has a significant market share. The company's revenue streams are multifaceted, including monthly subscription fees for mobile and internet plans, sales of hardware such as routers and smartphones, and fees for its extensive cloud and hosting services, particularly through its IONOS brand which caters to small and medium-sized businesses. The 1&1 services explained often highlight bundled packages designed to offer value and convenience to customers.

In terms of its 1&1 hosting infrastructure, the company operates a network of data centers, ensuring reliable and secure hosting solutions. The 1&1 customer support structure is designed to assist users with a variety of technical and service-related queries, aiming for efficient problem resolution. The process for a new customer to use 1&1 IONOS services typically involves selecting a plan, registering a domain, and configuring their website or application, with clear guidance provided throughout the onboarding phase. The company's approach to cloud computing services emphasizes scalability and flexibility, catering to the dynamic needs of businesses.

The technology stack that 1&1 IONOS utilizes is robust, focusing on performance and security. Ensuring website security for clients is a paramount concern, with measures in place to protect against various online threats. The company's pricing structure is competitive, offering different tiers of service to accommodate various budgets and requirements, making it an attractive option for small businesses looking for comprehensive digital solutions. The role of 1&1 IONOS in the web hosting industry is that of a major provider, contributing significantly to the accessibility of online presence for a vast number of users.

The core operations of the 1&1 company revolve around delivering a wide array of telecommunications and digital services, primarily to private households and small to medium-sized businesses within Germany. This includes providing high-speed internet access through DSL and fiber-optic connections, along with mobile communication plans, both postpaid and prepaid. Beyond basic connectivity, the company also offers a suite of cloud-based applications, such as smart home solutions, IPTV, video on demand, and online storage, aiming to be a comprehensive digital partner for its customers.

The company's value proposition is built on a foundation of reliable, competitively priced products, strongly supported by an emphasis on customer service. This commitment is demonstrated through award-winning support channels and specific offerings like the 1&1 Service Card, which provides benefits such as 24-hour device replacement and access to a priority hotline, enhancing the overall customer experience.

Broadband and Mobile Services

The company provides high-speed internet access via DSL and fiber-optic technologies. Mobile services are offered through various postpaid and prepaid plans, catering to diverse user needs.

Cloud and Digital Applications

A range of cloud-based solutions are available, including smart home technology, IPTV, video on demand, and online storage options. These services expand the company's digital offerings beyond basic connectivity.

Network Infrastructure and Partnerships

The company leverages its affiliation with 1&1 Versatel, which manages a significant fiber-optic network in Germany. This allows for the provision of gigabit speeds and future-proof fiber connections through strategic collaborations with other network providers.

Mobile Network Transition

For mobile services, the company is actively building its own 5G network. Previously, it utilized national roaming wholesale services, transitioning from one major provider to another in late 2024 to enhance its mobile infrastructure.

A key differentiator in how the 1&1 company works is its pioneering development of Europe's first fully virtualized 5G mobile network, built on Open RAN technology. This cloud-native approach is designed to be technology-agnostic, reducing reliance on specific manufacturers and paving the way for advanced, real-time applications. This strategic move from a Mobile Virtual Network Operator (MVNO) model to becoming a full network operator grants greater control over its infrastructure and service delivery, ultimately aiming to provide enhanced customer benefits and a stronger market position. The ongoing investment in its own network, including the construction of antenna sites and core data centers, highlights a long-term strategy focused on reducing dependence on third-party networks and achieving operational efficiencies.

Strategic Network Development

The company is investing heavily in its own 5G network infrastructure, utilizing Open RAN technology for a flexible and independent mobile network. This strategic shift aims to improve service quality and reduce long-term operational costs.

• Development of Europe's first fully virtualized 5G mobile network.
• Utilizes Open RAN technology for a cloud-native and technology-agnostic approach.
• Aims for independence from dominant hardware manufacturers.
• Designed to support future real-time applications and advanced services.

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The primary revenue streams for the 1&1 company operations are built upon a robust subscription model for its telecommunications services. This approach ensures a predictable and stable income flow, a cornerstone of the 1&1 business model. The company's operations are broadly categorized into two main segments: Access, which includes broadband and fixed-line services, and the 1&1 Mobile Network segment, focusing on mobile telephony and data. These segments collectively drive the company's financial performance, illustrating how 1&1 works to serve its customer base.

A significant portion of the company's earnings comes from high-margin service revenue. In the financial year 2024, this segment saw a healthy increase of 1.8%, reaching €3.30 billion, up from €3.24 billion in 2023. This growth in service revenue highlights the value customers place on the ongoing services provided. For the first quarter of 2025, service revenue demonstrated stability, holding steady at €821.9 million, mirroring the figures from the same period in 2024.

Conversely, revenue generated from low-margin hardware, predominantly smartphone sales where the cost is recouped through higher package prices, experienced a decline. In 2024, hardware revenue was €761.2 million, a decrease from €853.5 million in 2023. This shift indicates a strategic focus on service-based revenue rather than hardware sales. Overall, the total revenues for 1&1 AG in the financial year 2024 saw a slight decrease of 0.8%, totaling €4,064.3 million, down from €4,096.7 million in 2023. This trend continued into the first quarter of 2025, with total revenue declining by 0.6% to €1,018.5 million compared to €1,024.4 million in Q1 2024.

Subscription-Based Services

The company's core revenue is generated through recurring subscriptions for telecommunications and internet services. This model provides predictable income streams.

Service Revenue Growth

High-margin service revenue is a key driver, increasing by 1.8% to €3.30 billion in 2024. This indicates strong customer retention and value perception.

Hardware Revenue Decline

Revenue from hardware sales, such as smartphones, has decreased, reflecting a strategic shift towards service-centric monetization.

Bundled Offerings

The company bundles mobile, broadband, and value-added services like smart home and IPTV. This strategy aims to increase customer loyalty and average revenue per user.

Dual Brand Strategy

Utilizing both the primary brand for premium segments and discount brands under Drillisch Online GmbH allows the company to capture a wider market share across different price sensitivities.

Network Migration Benefits

The ongoing migration of customers to its own mobile network is projected to generate cost savings from reduced wholesale expenses starting in 2026, positively impacting future profitability.

Monetization Strategies in Action

The company employs a multi-faceted approach to monetization, focusing on customer value and market reach. These strategies are crucial to the 1&1 business model, ensuring sustained growth and profitability.

• Bundled Services: Combining mobile, broadband, and additional services like IPTV and smart home solutions to enhance customer value and increase average revenue per user (ARPU).
• Tiered Pricing: Offering different service levels and feature sets at varying price points to cater to diverse customer needs and budgets.
• Cross-Selling: Promoting additional products and services to existing customers, leveraging the established relationship to drive incremental revenue.
• Brand Segmentation: Utilizing the primary 1&1 brand for value and premium offerings while employing discount brands under Drillisch Online GmbH to attract price-sensitive consumers. This dual approach expands market penetration.
• Network Infrastructure Investment: The strategic move to build and utilize its own mobile network is a long-term monetization strategy, aiming to reduce wholesale costs and improve service margins, as discussed in the Marketing Strategy of 1&1.
• Customer Onboarding: Streamlining the process for new customers to adopt 1&1 services ensures a smooth transition and early revenue generation.

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The strategic journey of 1&1 AG has been significantly shaped by its ambition to establish itself as a major player in the German telecommunications market, particularly as the fourth mobile network operator. A pivotal moment was the acquisition of 5G frequencies in 2019, which laid the groundwork for building its own mobile network. This endeavor is distinguished by its pioneering approach, utilizing Europe's first fully virtualized 5G network architecture based on Open RAN technology. This technological choice is intended to foster greater independence and drive innovation in its network operations. The company officially launched its 5G network in December 2022, initially offering fixed wireless access (FWA) services. Subsequently, 5G mobile services for smartphones became available starting in December 2023, marking a significant step in its 1&1 business model.

Despite these advancements, the company has encountered operational hurdles and market challenges. A notable incident occurred in May 2024 with a temporary outage of its mobile network. This event led to an increase in customer contract terminations and temporarily halted the planned migration of existing customers to its new network infrastructure. The outage, coupled with an unexpected under-dimensioning of certain network components, had a tangible impact on the company's financial performance in 2024. Specifically, the start-up costs for the 1&1 Mobile Network segment rose to €-265.3 million in 2024, an increase from €-132.4 million in 2023. However, the migration of existing customers resumed at a significant pace in the fourth quarter of 2024. The company has also addressed slower-than-anticipated rollout progress, attributing it to delivery delays from partners such as Vantage Towers. In response, 1&1 is increasingly focused on acquiring its own sites to expedite network deployment and enhance its 1&1 hosting infrastructure.

1&1's competitive strengths are multifaceted, built upon a foundation of strong brand recognition and an extensive fiber-optic network operated by 1&1 Versatel. The company's commitment to pioneering Open RAN 5G technology provides a distinct advantage, offering flexibility in selecting hardware and software partners. This approach has cultivated a broad ecosystem of over 100 partners, with a significant portion, 50%, being German-based, which is instrumental in supporting its network build and ongoing operations. With a substantial customer base exceeding 16 million contracts, 1&1 maintains a robust market position. This is further bolstered by customer loyalty, cultivated through a customer-centric approach and award-winning service, which is a key aspect of how 1&1 works. The company's strategic focus remains on expanding its network capabilities and achieving the full migration of its existing customer base to its own network by the end of 2025. This migration is projected to yield substantial cost savings starting from 2026, demonstrating a clear path for future growth and efficiency within its Growth Strategy of 1&1.

Network Expansion and Technological Innovation

1&1 AG's strategic move into becoming Germany's fourth mobile network operator is a defining milestone. The acquisition of 5G frequencies in 2019 was crucial for this expansion. The company is leveraging Europe's first fully virtualized 5G network, built on Open RAN technology, to foster independence and innovation.

Operational Challenges and Adaptations

The company faced a temporary mobile network outage in May 2024, which impacted customer migrations and contract terminations. Increased start-up costs for the mobile network segment were reported, reaching €-265.3 million in 2024. Delivery delays from partners also affected rollout progress, prompting 1&1 to acquire more of its own sites.

Competitive Advantages and Market Position

1&1 benefits from strong brand recognition and an extensive fiber-optic network through 1&1 Versatel. Its pioneering Open RAN 5G technology allows for flexibility in partner selection, creating a broad ecosystem. The company serves over 16 million customer contracts, indicating a significant market presence.

Future Outlook and Cost Savings

The company aims for full customer migration to its own network by the end of 2025. This strategic objective is expected to result in significant cost savings beginning in 2026, underscoring the long-term vision for its 1&1 business model.

Key Aspects of 1&1 Company Operations

1&1's operational strategy centers on building and managing its own advanced mobile network, supported by a robust fiber-optic infrastructure. The company's customer-centric approach and award-winning service are integral to its success.

• Acquisition of 5G frequencies in 2019.
• Launch of 5G network in December 2022.
• Use of Open RAN technology for network virtualization.
• Focus on customer migration to own network by end of 2025.

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1&1 AG holds a significant position within the German telecommunications sector, managing over 16 million customer contracts as of the close of 2024. This extensive customer base includes 12.44 million mobile contracts and 3.95 million broadband connections. As the fourth mobile network operator in Germany, the company faces competition from established players such as Deutsche Telekom, Vodafone Deutschland, and Telefónica Deutschland. Its market presence is strengthened by a varied portfolio of brands, catering to both the value and premium segments of the market.

Industry Position

1&1 AG is a key player in the German telecom market, operating as the fourth mobile network operator. Its diverse brand strategy allows it to serve a broad customer base, from budget-conscious users to those seeking premium services. The company's extensive network of customer contracts underscores its established presence and competitive standing.

Key Risks and Headwinds

The company is navigating substantial financial challenges related to its 5G network rollout, which led to a reported loss of €-265.3 million in group earnings for 2024. Operational disruptions, including a network outage in May 2024, have also contributed to increased customer churn. Furthermore, higher-than-anticipated wholesale roaming costs are projected to impact EBITDA in 2025.

Financial Outlook

The company anticipates a decrease in total EBITDA for 2025, forecasting it to be approximately €571 million, a slight decline from €590.8 million in 2024. This projection is primarily attributed to reduced EBITDA in the Access segment and the ongoing expenses associated with the new network's development.

Future Strategy and Investments

1&1 is committed to expanding its profitability by investing in its own network infrastructure. The planned cash capital expenditure is set to rise significantly to around €450 million in 2025, an increase from €290.6 million in 2024. These investments are crucial for customer migration and network expansion efforts.

The company's strategic focus involves the complete migration of its mobile customers to the new 1&1 network by the end of 2025, with expected cost savings from wholesale services commencing in 2026. Long-term network coverage targets include reaching 25% of German households by 2025 and 50% by 2030. 1&1's approach centers on building a fully virtualized, independent Open RAN 5G network, aiming to foster greater competition and innovation within Germany's telecommunications landscape. Understanding the ownership structure behind such initiatives can provide valuable context; for more details, explore the Owners & Shareholders of 1&1.

Network Development Goals

1&1 aims to establish a robust and competitive 5G network. This involves significant capital investment and strategic customer migration.

• Target: 25% household coverage by 2025
• Target: 50% household coverage by 2030
• Strategy: Build a fully virtualized, independent Open RAN 5G network
• Objective: Enhance competition and innovation in the German telecom market

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