5G Part I - Network Sharing
Alex Congxu Ke - Consultant
Anthony Dornan - Engagement Manager
Audi Pous - Partner
5G, the next generation of mobile connectivity, is around the corner and telecoms operators around the world are exploring how to launch and commercialise. In the US, AT&T will start providing 5G services in 12 cities before 2019, while T-Mobile and Sprint are lobbying regulators to allow their mega merger by claiming it’s the only way to help the US lead the 5G race globally. China will invest more than $400 billion in 5G and has entered an alliance with the two other regional leaders in connectivity - Japan and South Korea. With initial 5G standards finalized by 3GPP in June, it is certain that more 5G-related action will happen in the coming months.
5G goes beyond the concept of traditional connectivity. It will provide ultra-fast, low latency and high reliability connectivity, enabling a range of new use cases. These include mission critical IoT and massive IoT solutions like smart cities as well as enhancing consumers’ broadband experience.
However, the increased ambition of 5G will offer more obstacles than ever for operators. Network densification will result in 10 times more new sites compared with 3G and 4G and each will require fibre connection and additional spectrum. This will lead to significant CAPEX outlay as well as additional operational complexities, including design standardisation, location agreements and negotiations with municipalities to ensure right of way.
To deliver 5G and overcome deployment road blocks, operators should consider a different approach: network sharing. On the condition that the market remains competitive, network sharing (and the “NetCo” model) delivers significant benefits to 5G roll-outs. In this paper, we will examine what network sharing means for 5G, why a NetCo model could make sense and potential ways regulators and operators can enable this model.
What is network sharing? What is a NetCo?
Network sharing refers to the sharing of passive and/or active components of networks owned by different operators. The scope ranges from purely passive infrastructure, such as towers and ducts to the Radio Access Network (RAN), transmission, spectrum and core networks.
Going a step further, a NetCo is a shared network model where a third party or operators jointly establish a separate entity, like a joint venture, to build and/or operate a shared network. In 3G and 4G network sharing, especially in the form of a NetCo, is widely seen as an effective way to accelerate network deployment, while reducing network-related investment and operational costs. For example, MBNL, the network sharing joint venture between UK operators EE and 3, has significantly improved 3G coverage, generated £1 billion in savings over 10 years and helped operators capture market share.
More recently, 5G sharing has begun to gain traction. Net4Mobility, a long-standing network sharing joint venture between Swedish operators Telenor and Tele2, plans to create a common 5G network, building on their successful 4G and 2G sharing model. Altan, the innovative independent 4G wholesale network in Mexico, is also building a 5G-ready network that could be shared by all mobile operators. T-Mobile and Sprint are planning to go further, arguing that only via a merger can they build a strong nationwide 5G network.
5G sharing can take various forms, depending on the scope of sharing and the operating structure. Potential models include: Network co-ownership, where a new entity is co-owned by the parent operators that is responsible for owning and building the new infrastructure; and a network management model, where the parent entities still own network infrastructure separately but the common entity is responsible for operating and managing the sharing relationship. The actual model of a 5G NetCo largely depends on the negotiations between operators and regulatory limitations.
Whilst sharing can bring many efficiencies, it is ill-advised to have a single NetCo for all operators in a market as it will hinder competition and industry innovation in the long term. In reality, different levels of network sharing may be found in urban and rural areas. In urban areas where networks need to be customised to serve many users, sharing will often be limited to passive infrastructure and transmission. In rural areas MOCN sharing can be enabled. Some markets have multiple operators separately signing several network sharing deals in urban areas but have joined forces in rural areas to roll out one network.
Why NetCos for 5G? Why now?
5G is happening now and operators are trying to find optimal ways to successfully roll-out. We believe that the NetCo model can deliver significant economic and operational benefits, including:
- Up to 40% savings in deployment CAPEX/OPEX from cost reduction in small cells roll-out, macro cell and core upgrades and 5G spectrum;
- faster deployment time;
- significant operational efficiencies (e.g. spectrum efficiency, network operations) and cost savings in the long term;
- better network experience for consumers through increased footprint and/or capacity;
- reduction of risk of redundant / unprofitable investments; and
- maintaining retail competition, ensuring fair prices for consumers.
The benefits are significant with return on investment maximized while minimizing risk. To ensure operators capture these benefits they need to act now as:
- Commercial pressure to launch 5G is growing and many operators have already set dates for commercial 5G;
- many operators won’t be able to effectively sustain the investment required independently, especially in the medium term with R16 requirements, due to huge financial pressure of new infrastructure deployment;
- regulatory authorities must be convinced to allow this model for 5G. Many have identified 5G as a key enabler for technological and economic development. Governments realize 5G is of critical strategic importance due to the impact it will have across all industries.
What does it mean for operators and policy makers?
A NetCo for 5G rollout sounds attractive but it requires significant effort and alignment from regulatory authorities and telcos.
Telecom and competition authorities may need to reconsider their infrastructure regulations, spectrum policies, industry fees, incentives and competition policies to allow sufficient sharing by operators while maintaining a healthy level of market competition, QoS and prices. (See Exhibit 1)
Exhibit 1: Key Regulatory Questions to Ensure Optimal Deployment of 5G
For telcos exploring a NetCo model, it is essential to understand the complexity of 5G deployment, with paramount importance placed on a well-planned execution strategy. Moreover, a significant degree of alignment is required from all involved parties, especially on key issues such as financial agreements and vendor selection.
The creation of a NetCo can take different forms: A merger of all market networks; an incumbent network carve-out; a merger of challengers’ networks; or the introduction of an independent NetCo.
The key drivers determining the final model will be dependent on the current market situation, telcos’ willingness to reach an agreement and regulatory flexibility. Each model offers different challenges and risks (see Exhibit 2).
Exhibit 2: NetCo Creation Options
More NetCos on the Way
The NetCo model brings significant 5G deployment benefits and is an effective way to accelerate roll-out. Operators should seek to leverage the NetCo model by initiating or expediting negotiations to realise 5G deployment more efficiently and at lower costs. All the while, regulators must examine current network sharing related regulations, including spectrum policies, and facilitate NetCos as part of the national 5G strategy.
At Mobile World Congress 2018, GSMA chairman Sunil Mittal called on mobile operators to adopt the NetCo model – “My dream is to have a significant NetCo…people have to come together and form common networks…you cannot waste billions of dollars on building highly subscale networks”.
At Delta Partners, we firmly believe that the NetCo model is an effective and necessary way to ensure successful, sustainable 5G deployment.
Alex is a Consultant at Delta Partners based in its Dubai office. He has management consulting and corporate finance advisory experience in telecom, media and regulatory spaces across North America, Middle East, Africa and Southeast Asia. He holds a Masters in Management degree from London Business School.
Anthony has over 5 years of management consulting experience in the TMT sector, working with telecoms operators and technology companies around the globe. Anthony is currently based in Delta Partners’ Dubai office where he helps clients in the region solve their strategic challenges.
Audi is a Partner at Delta Partners with focus on commercial strategy, Analytics Based Management and business planning. He has over 12 years of experience in the Middle East, Africa and CIS countries. He holds an MBA from ESADE and has studied at McCombs Business School at the University of Texas at Austin.
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