Sharing to save

Julien Grivolas/Ovum
08 Sep 2008

With the next billion mobile subscribers expected to come from emerging countries, major operators look to these markets to boost their growth. Since limited ARPU is associated with these customers, operators have to cut network costs to be profitable. This requires more cost-efficient network infrastructure products from equipment vendors from both capex and opex perspectives, and also encourages operators to consider collaborative agreements like network sharing partnerships with competitors.

Operators have generally focused their efforts on reducing capex. For example, some large international operators decided to centralize and rationalize their equipment purchase processes at a group level instead of at the traditional local (country) level. This move gave operators a stronger position when negotiating prices with vendors due to the larger scale of deals. Now operators are paying more attention to opex. Strategies considered for reducing costs include power savings, optimized network design, outsourcing/managed services and network sharing.
Network sharing, in particular, is increasingly considered by operators as a way to reduce costs associated with the radio access network (RAN) infrastructure. Although cost reduction has always been a key driver for this, the capability to quickly deploy 3G networks is also a key factor.

But since network sharing is the outcome of a strange recipe, it must be done in such a way that regulators do not perceive that competition is being altered.

There are many ways to engage in network sharing, with site sharing being the simplest and most common. Site sharing provides both capex and opex savings. Partners share all costs related to site acquisition, including site identification, negotiation, legal work and civil works. With this agreement, they will have fewer sites and less equipment to maintain and power. Site rental and set-up can also drop by up to 40%.

Operators can also go the RAN sharing route - an extension of site sharing. Each operator still has its own core network and all equipment beyond the BSCs/RNCs is not shared. The spectrum also remains separately owned. Here, capex and opex savings go beyond just the site and extends to RAN components. Partners may get better deals from vendors due to larger order volumes. Equipment to be decommissioned as a result of the partnership, meanwhile, can be used elsewhere to increase coverage in new areas or boost capacity and performance in existing areas - something that can chalk up more revenues for the partners.

RAN sharing can be extended into a common shared network deal, which involves shared MSCs and SGSNs, on top of the RAN components. This means improved potential capex and opex savings, as MSCs and SGSNs are quite costly. Partners can also have faster time-to-market for their services. But as the scope of the agreement is wider, it also tends to be more complicated than RAN sharing.

Operators, especially new entrants, can opt to do geographic and national roaming partnerships. National roaming is important for new entrants because it enables operators with little infrastructure to quickly generate revenues without incurring the associated costs of a large network rollout.

With network sharing becoming more popular, vendors are developing more products with active network sharing features. While, at first glance, it may look as if this will discourage equipment sales as operators will just combine their networks into one, this also provides an opportunity for vendors to offer professional services.

Given the practical complexity associated with network sharing, vendors can position their network and equipment expertise as key strengths to help operators in the process. Vendors can offer consulting services, network design and network planning services. They can also provide outsourcing or managed services to operators' joint ventures.

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