Is Network Sharing the OnlyWay Forward for the European Mobile Business?
By Mike Green, European Correspondent Wireless Design & Development
The year 2009 is set to be the toughest year to date for European mobile operators. They are facing a fully saturated market, declining voice revenues due to hyper-competition, and a subscriber base that is going to attempt to cut its expenditure on all non-essentials. A recent report from Ovum Research voices the opinion that many operators will be left with little choice but to work together with their rivals and pool their network resources.
"Although there have already been some network sharing initiatives, it is likely to become far more widespread in the next 12 months," states Emeka Obiodu, Senior Analyst at Ovum. As he views it, this offers firms the best opportunity for lowering both their capital expenditure and running costs. "In some places operators spend money keeping cell sites that are hardly used on line in low population areas, so there is clearly an advantage in doubling up with another operator," Obiodu continues, "and even in heavy traffic locations such as city centres they could save money, especially on their energy bills, by switching off some sites at nights or weekends. By sharing networks in these locations, they would be able to slash their rental costs, and there would be obvious environmental benefits."
The industry certainly seems to be keen on the idea. Orange and Vodafone have already collaborated together in both Spain and the UK when it comes to 3G infrastructure, thereby helping them to slash their operating expenditure.
T-Mobile and 3 have been in a similar partnership in the UK for over a year now. Vodafone and TIM have also been sharing their passive network infrastructure in Italy and are committed to continue this for several years into the future, after signing a six-year renewal deal in November 2007.
I asked Jim Hyde, Managing Director of T-Mobile in UK, what his position was on the whole network sharing debate. "We wholly agree with the encouragement of network sharing," he replied "its something we have already pioneered with 3, to provide us with 3G coverage wherever we have 2G." In his opinion, "there is no reason at all why sharing network infrastructure should in anyway impede competition within the mobile sector, but it can reduce costs for all. It lowers the total number of cell sites needed, and it enables more rapid deployment of network coverage and improves network quality."
But while the regulators have allowed operators to enter into roaming deals and passive network sharing, it is uncertain if they will be willing to extend this to more comprehensive sharing agreements. "The regulators are not worried about passive sharing, but when it comes to the wireless access network, it could become more of a problem," Obiodu explains "the real issue of contention here is that regulators in one EU member state could have a totally different attitude to one in another. Operators are at risk of being in the dark on this. What they really want is a clear cross-continent directive that lets them know what they are allowed to, and what they are not."
"A coherent commercial and regulatory framework across the whole of Europe will make sharing the norm rather than the exception," he feels. "It should be clear to operators that the same conditions will prevail across the region. Most licenses were issued with coverage stipulations, and now that the mobile network is already ubiquitous, those coverage demands for every operator ought to be relaxed, especially in the 2G domain. Such regulatory clarity would encourage operators to see network sharing as an evolutionary strategy rather than a radical move."
However, won't this lead to capacity issues? Are operators just going to see it as a way to shirk their responsibilities, and sell their clients short? Will this new strategy increase the number of dropped calls, and lead to customer dissatisfaction? "That is a possibility, but I would say it's unlikely. Operators want to avoid customer churn at all costs, especially in these difficult times. It is more likely to be good for subscribers than bad. By being able to turn off parts of their network at off-peak times, and work together with other operators, they can reduce their running cost and pass those savings on to the customers," Obiodu responds.
It might also mean that other players will enter the market, and simply hire out network space. Companies like Virgin (using T-Mobile's infrastructure) and supermarket chain Tesco (using O2's infrastructure) have already followed this strategy to launch their own cell phone businesses. So was the initial business model for the mobile industry flawed? Obiodu doesn't think so, but he does feel that it needs to be adapted. "In the early days of the mobile industry, it was the size of an operator's network that allowed it to differentiate itself from its rivals and gain subscribers. Nowadays the network is effectively ubiquitous. It isn't where operators look to compete with one another," he concludes.
Mike Green can be reached at mikegreen3@hotmail.co.uk; 011-07917-435097.
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"Although there have already been some network sharing initiatives, it is likely to become far more widespread in the next 12 months," states Emeka Obiodu, Senior Analyst at Ovum. As he views it, this offers firms the best opportunity for lowering both their capital expenditure and running costs. "In some places operators spend money keeping cell sites that are hardly used on line in low population areas, so there is clearly an advantage in doubling up with another operator," Obiodu continues, "and even in heavy traffic locations such as city centres they could save money, especially on their energy bills, by switching off some sites at nights or weekends. By sharing networks in these locations, they would be able to slash their rental costs, and there would be obvious environmental benefits."
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T-Mobile and 3 have been in a similar partnership in the UK for over a year now. Vodafone and TIM have also been sharing their passive network infrastructure in Italy and are committed to continue this for several years into the future, after signing a six-year renewal deal in November 2007.
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But while the regulators have allowed operators to enter into roaming deals and passive network sharing, it is uncertain if they will be willing to extend this to more comprehensive sharing agreements. "The regulators are not worried about passive sharing, but when it comes to the wireless access network, it could become more of a problem," Obiodu explains "the real issue of contention here is that regulators in one EU member state could have a totally different attitude to one in another. Operators are at risk of being in the dark on this. What they really want is a clear cross-continent directive that lets them know what they are allowed to, and what they are not."
"A coherent commercial and regulatory framework across the whole of Europe will make sharing the norm rather than the exception," he feels. "It should be clear to operators that the same conditions will prevail across the region. Most licenses were issued with coverage stipulations, and now that the mobile network is already ubiquitous, those coverage demands for every operator ought to be relaxed, especially in the 2G domain. Such regulatory clarity would encourage operators to see network sharing as an evolutionary strategy rather than a radical move."
However, won't this lead to capacity issues? Are operators just going to see it as a way to shirk their responsibilities, and sell their clients short? Will this new strategy increase the number of dropped calls, and lead to customer dissatisfaction? "That is a possibility, but I would say it's unlikely. Operators want to avoid customer churn at all costs, especially in these difficult times. It is more likely to be good for subscribers than bad. By being able to turn off parts of their network at off-peak times, and work together with other operators, they can reduce their running cost and pass those savings on to the customers," Obiodu responds.
It might also mean that other players will enter the market, and simply hire out network space. Companies like Virgin (using T-Mobile's infrastructure) and supermarket chain Tesco (using O2's infrastructure) have already followed this strategy to launch their own cell phone businesses. So was the initial business model for the mobile industry flawed? Obiodu doesn't think so, but he does feel that it needs to be adapted. "In the early days of the mobile industry, it was the size of an operator's network that allowed it to differentiate itself from its rivals and gain subscribers. Nowadays the network is effectively ubiquitous. It isn't where operators look to compete with one another," he concludes.
Mike Green can be reached at mikegreen3@hotmail.co.uk; 011-07917-435097.