Operators have shown renewed interest in network sharing in recent years. Conditions for mobile infrastructure sharing are arguably more favorable than they were 10 years ago. Regulators and operators are more successful in reaching agreement on networking-sharing deals. In fact, organizations called “towercos” have emerged to provide site-sharing facilities and services.
The stakes are even higher as operators like Sprint, Verizon Wireless, Cox Communications and AT&T move into 4G environments. Introducing a new technology like LTE is expensive. Operators will need to purchase equipment and spectrum at great cost. The early take-up of any new service is always slow to start, which places a strain on operators’ cash flows. Sharing the cost of developing the access infrastructure can mitigate this. Concerns that operators may have about differentiating themselves from the competition will become less important as operators increasingly compete on content rather than coverage.
The reason for this renewed interest is clear: Infrastructure sharing offers significant opportunities to reduce costs. Access network costs typically represent between one-sixth and one-third of a mobile network operator’s total costs (see Figure 1).
The amount that an operator can save depends upon the depth of the sharing arrangement. Options range from passive forms, such as site sharing, to active forms, such as full spectrum and RAN sharing. Mobile network operators (MNOs) also can share elements of their core networks. The potential cost savings and benefits increase as the depth of the sharing increases, but so do the risks.
We considered the costs and benefits over five years of a new network build, for example, two MNOs jointly rolling out an LTE network. Our analysis shows that operators that jointly roll out a new build of 2,500 sites in a developed economy will typically realize 30 percent capex savings accumulated over five years (see Figure 2). They also would achieve a 15 percent opex reduction per year by year five.
Many pressures are driving many MNOs to consider infrastructure sharing as a means of reducing costs and improving margins. Operators face the growing challenge of maintaining multiple networks with multiple technologies (GSM, HSPA and LTE), which pushes up the costs of network operation and maintenance. Site-related opex is increasing in many markets – particularly as a result of the rising costs of site rental and power. Macroeconomic conditions continue to be very challenging, which makes accessing funding difficult and the cost of borrowing high. We predict the total data traffic volume in 2015 will be more than 30 times that in 2010. MNOs will need to make capital investments to increase capacity in order to meet this demand, all this while ARPUs are flat to decreasing and penetration rates are stagnant.
Infrastructure sharing offers a range of benefits that help foster positive societal benefits.
Consumer benefits – Both passive and active sharing may benefit consumers by increasing the availability of telephony services, accelerating the pace of mobile network rollout, increasing consumer choice and reducing the cost of services. Many governments regard wireless technologies as vital for bridging the digital divide because they will enable operators to provide broadband connectivity in rural or remote areas. Infrastructure sharing may be a useful tool for stimulating mobile broadband provision in areas that may otherwise be uneconomical to serve.
Competition benefits – Infrastructure sharing may help to stimulate competition by shifting the focus of operators’ differentiation from coverage towards services. It also may enable new entrants to launch their services more rapidly because it will reduce the number of sites needed.
Environmental benefits – Environmental concerns have become more prevalent in the past 10 years. Infrastructure sharing can contribute towards broader environmental goals. Passive site sharing can mitigate the visual impact on the landscape of mobile networks by reducing the total number of masts and towers (although duplicating sites may at times be preferred to larger sites hosting multiple antennas). Sharing power supplies reduces energy consumption, which helps support government and corporate policies on reducing carbon emissions.
Spectral-efficiency benefits – Spectrum pooling for shared RAN operation (MOCN configurations) or sharing of backhaul microwave frequencies encourages the optimal use of spectral resources. However, spectrum pooling is more contentious than some other forms of sharing, and operators are often required to use their dedicated frequencies as a condition of RAN sharing. Similarly, regulators may restrict the sharing of microwave spectrum – for example, to rural areas only, where backhaul facilities may be acting as a bottleneck.
Within the past three years, MNOs around the world have reached successful wireless infrastructure sharing agreements including Bell Mobility and TELUS; Telefonica O2 and Vodafone; France Telecom and Vodafone; and EVN Telecom and Vietnamobile. These arrangements have driven down long-term capital expenditures and operating costs. We believe similar arrangements would benefit the U.S.-based operators as they deploy new 4G networks.
Terry Norman is principal analyst at Analysys Mason.
Filed Under: Infrastructure