Active network and spectrum sharing arrangements are offering mobile network operators (MNOs) a significant opportunity to reduce their costs in light of declining revenue. However, if MNOs are to benefit from such arrangements, they must be aware of the challenges and plan accordingly. In this article, we explore the key strategic, financial, operational and technical considerations for mobile operators that wish to move beyond the increasingly common passive-only sharing (for example, of sites and towers) to active sharing (RAN, MO-RAN, MO-CN, GWCN): sharing radio equipment, backhaul, antennas and, ultimately, spectrum.
Reasons to share: operators' competitive environments
Reducing costs and freeing up capital
In many advanced mobile markets, mobile network operators (MNOs) have focused on cost savings, in the light of flat or declining mobile revenue, a shift from voice towards lower unit-margin data services, and a growing momentum in MNO strategic thinking that considers networks as non-core and non-differentiating.
MNOs are increasingly selling and leasing back their tower assets to tower companies (towercos). Insofar as the towerco business case is based on maximising tenancy ratios (that is, the number of MNOs sharing a tower), tower sales are a form of (passive) network sharing, albeit one in which the cost savings are shared with a third party. There may be other additional benefits, such as towercos ensuring the availability of power, which can be attractive to MNOs in developing markets. However, MNO and towerco objectives are not fully aligned. Tower deals usually require the selling party to commit to lengthy ongoing leases on the tower estate, reducing the scope for further synergies through network sharing in future.
Low ARPU in developing markets, such as those in Africa and South-East Asia, has led operators to pursue network sharing as a cost-effective way of maximising their coverage and hence the revenue opportunity.
Responding to NRA spectrum licence strategies
National regulatory authorities (NRAs) in countries such as Hong Kong, Malaysia and Sweden have issued fewer 4G licences than there are incumbent operators, which has pushed operators into joint spectrum acquisition vehicles and subsequently shared network roll-outs.
Finding an alternative to M&A
Regulators and competition authorities remain reluctant to support in-country consolidation, as demonstrated by the conditions that the European Commission imposed when it approved Hutchison 3G (H3G) Ireland's recent acquisition of Telefónica's O2 Ireland. The terms imposed on Hutchison 3G aim to minimise market repair synergies (that is, ensure that the level of competition in the market is retained), leading operators to look for alternative ways to capture synergies and monetise their assets.
Securing agreement: key challenges require board-level attention
Active network sharing can provide significant benefits, but operators must approach the details of such agreements with care (see Figure 1).
Figure 1: Key decisions and considerations for successful active network sharing agreements [Source: Analysys Mason, 2014]
| Decisions | Considerations |
| Depth of sharing | Site; passive; active+core; spectrum pooling |
| Geographical extent of sharing | Ad hoc; rural; all non-urban (‘full network’) |
| Technology focus of sharing | New-build (greenfield); existing (brownfield); 2G/3G/4G; spectrum bands; opportunistic versus active site consolidation |
| Asset ownership | Retention versus transfer (joint venture) |
| Service provision | In-house versus transfer; bilateral/reciprocal versus joint venture; extent of outsourcing |
| Cost allocation and pricing model | Not for profit; guaranteed margin; ‘arm’s length’ |
Common belief sets, agreed objectives
Active sharing in particular, to be sustainable, requires progressively closer alignment between the operator partners on key beliefs that underpin their commercial and technology strategies, including future customer needs and propositions (for example, fixed broadband replacement), traffic, technology lifecycles (for example, 3G migration or legacy retirement, and spectrum repurposing) and technology evolution. It is clearly far from trivial for operators to achieve this degree of alignment, given the constraints on disclosure to competitors.
Valuation symmetry and cost management
One of the key challenges in completing a network share is the need to agree relative valuations for any assets shared and/or transferred. Symmetry of network scale and customer/traffic profile facilitate reaching an agreement. However, in practice, operators commonly disagree on the valuation of one another's assets, and it is difficult for them to achieve consensus. Asymmetric deals are possible (for example, H3G Ireland–Vodafone and EE–H3G UK), facilitated by high exit barriers, and 'prisoner's dilemma' dynamics where strengthening a (potentially disruptive) smaller competitor is the 'least bad' choice. It is also worth noting that national roaming is one extreme form of asymmetric sharing.
Another common area of contention is the desire for operators to balance the triangle of:
- ensuring adequate compensation for unilateral upgrade requirements (for example, A requests a capacity upgrade for which B incurs a cost)
- preventing the partner from free-riding on unilateral upgrades (for example, B benefits from A’s capacity upgrade)
- limiting cost exposure risks because of imbalances in traffic volumes (both A and B want to cap their payments to the other party – but be compensated in full for the costs they incur).
Technology compatibility
In our experience, mobile networks are typically optimised around a small number of 'vendor regions' – geographical areas of equipment vendor homogeneity. Mixed-vendor regions would require additional optimisation effort, and there is a risk they could affect network quality. However, because a change of vendor is costly and may jeopardise quality during the transition, it will be synchronised with planned equipment refreshes and single-RAN (SRAN) deployment.
Board support and organisational buy-in
Our experience of supporting mobile operator clients on network sharing agreements highlights the need for the boards of both partners to be actively involved in working towards an agreement. Active network sharing offers the greatest potential for synergies, but internal resistance can be high. Although these – not surprisingly – remain largely unreported, there have been a multitude of failed attempts to reach network agreements. Realising these synergies, and – where appropriate – enabling subsequent monetisation requires a balance to be struck between strategic, financial, technical and 'emotive' considerations and constraints.
Source: Analysys Mason
