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Common Ground: Trend towards active infrastructure sharing

March 18, 2016

Telecom operators across the world have been witnessing a decline in their profit margins and ARPUs due to growing level of competition, not just from peers but also from content providers. Given that the tariffs offered by competing operators are more or less at par, operators are now differentiating their services on the basis of quality, diversity and technological advancement as well as data bandwidth. If a new technology (for instance, long term evolution) is being introduced, the differentiation is made on how quickly networks are rolled out to meet demand. Such differentiation comes at a certain cost.

Moreover, there are regulatory licence obligations to roll out new networks. This includes network coverage obligations in potentially unprofitable areas in terms of investments (especially in the case of 3G and 4G networks, which call for significant investments), or limitations in high density areas where stringent electromagnetic field emission limits prevail.

In this context, control by mobile network operators over their cost base tends to be a matter of survival as well as success. In order to keep a check on expenditure, sharing mobile network elements, whether active or passive, has emerged as a key trend among operators across the world.

The Indian telecom sector was among the first to adopt passive infrastructure sharing in a big way. The trend started in India in 2007 and led to the creation of a separate industry of telecom towers. Operator attempts to hive off their telecom tower assets into separate units and share this infrastructure with their peers led to significant savings and hence helped in increasing their margins. According to industry sources, passive infrastructure sharing can potentially yield overall cost savings of as much as 15-30 per cent, with clear cost savings on yearly site capex of up to 60 per cent (notably due to lower investment duplications), in addition to significant savings in opex (mainly costs of renting sites, site maintenance, personnel and power, air conditioning and fuel expenses).

Further, it helped them focus on their core business of providing services to end-users. This was particularly important in the case of the Indian telecom market, where core businesses were well-established by 2007 and the initial core capital investments already made. Policymakers too facilitated this transition by spelling out a clear set of guidelines that supported passive infrastructure sharing.

As far as active infrastructure sharing is concerned, the country is lagging behind many other telecom markets that have been able to take advantage of this. To some extent, this has been delayed due to the reluctance of operators to share the active elements of their network owing to the various complexities involved in doing this. The regulators need to play a key role in resolving these complexities.

In this regard, the final guidelines allowing spectrum sharing and trading will augur well for the sector. Adding to this, the government has recently allowed the sharing of active telecom infrastructure like antenna, feeder cable and transmission systems, a move that will lower costs for telecom operators and lead to faster network roll-outs.

“The sharing of active infrastructure amongst service providers based on mutual agreements is permitted. Active infrastructure sharing will be limited to antenna, feeder cable, Node B, radio access network (RAN) and transmission systems only,” the Department of Telecommunications stated in a notification.

Active sharing typically implies that an operator will give access rights to all or part of its radio access network (RAN) to one, or several, operators. RAN sharing can extend to joint management systems, combined maintenance arrangements and single backhaul to the point of connection with the core network while keeping the logical part of the network, the intelligence, discrete at all times. In case a deeper level of active sharing is contemplated, an operator can provide access to its mobile switching centres and/or to its packet-switched core network to other operators, which is referred to as backhaul sharing. In addition, active sharing can, to a certain extent, lead to the common operation of radio frequencies, that is, spectrum sharing.

Industry experts see the active infrastructure sharing trend to gain traction from 2016 onwards. The arrangements may differ from those in the case of passive element sharing. Typically, arrangements for active sharing are contractually separated from any passive sharing element. The rationale is that passive infrastructure can be dealt with in a number of more common ways and are likely to involve a more tried and tested path, but active sharing is more complex, requires a higher level of collaborative planning between the participants and is more likely to be impacted by innovation (for example, the growth of virtual base stations). Dependant on the model adopted, there could also be some element of spectrum sharing in active arrangements, which, in turn, gives rise to issues around the sharing of information and mechanisms to ensure that the operators’ regulatory obligations and commitments are not compromised.

To this end, the government’s move to facilitate active sharing comes at a time when operators are facing major cost challenges in rolling out next-generation data networks, given that most of them have already made significant investments in procuring the requisite airwaves.

 
 

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