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Pooling Pays: Case for active infrastructure sharing

June 21, 2017
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India’s vast size, huge rural population, strained operator margins and 5G/long term evolution (LTE) roll-out plans are strong drivers for active infrastructure sharing. India has a large geographical area, which makes it a challenge to cover the entire country with mobile network connectivity. Moreover, close to 70 per cent of the population lives in rural areas, where the deployment of mobile networks is very capital intensive. Operational costs per tower are estimated to increase by up to 20 per cent in remote and inaccessible terrain. In such a scenario, sharing infrastructure, particularly in rural areas, can help operators reduce costs significantly. While savings from passive sharing are estimated at 15-20 per cent for 3G-only radio access network (RAN) sharing and at 33-40 per cent for LTE-only networks (cumulative over 10 years), savings from active sharing could be even greater.

In recent years, the Indian telecom market has become extremely competitive, with each circle having five to six operators on an average. Falling prices are putting pressure on operator margins. In such a scenario, active infrastructure sharing can help remove redundancies and inefficiencies. Furthermore, as most operators launch LTE services, for which they have incurred a high amount of capex (spectrum and equipment), joint roll-outs of new networks can help them achieve savings. For instance, for a network roll-out of 2,500 sites, capex savings of up to 16 per cent can be realised from passive sharing (accumulated over five years). A 10 per cent opex reduction per annum could also be achieved from passive sharing by the end of the fifth year of implementation. Savings from active sharing are expected to be much greater.

Given the changing sector dynamics, the Department of Telecommunications allowed active infrastructure sharing in February 2016. As per the guidelines, active infrastructure can be shared among service providers based on mutual agreements; however, this has been limited to antennas, feeder cables, Node B, RAN and transmission systems only.

Successful active network sharing requires operators to surrender network autonomy and coordinate operating parameters. Operators in India can explore sharing models such as basic RAN sharing (sites, masts, antennas, feeders and backhaul) and multi-operator RAN sharing (only network equipment, no spectrum) or multi-operator core network sharing (spectrum and equipment), depending on their choice of depth of sharing. Increasing the depth of sharing increases cost savings, but it may also increase implementation risks and reduce control over network differentiation.

Some of the key benefits of infrastructure sharing are capex and opex savings, faster time-to-market, higher data throughput (by pooling spectrum bands), control over service offering differentiators such as quality of service, charging, billing and customer management, and better utilisation of network resources. However, it limits operator independence in terms of network differentiation and independent control over network elements, and requires joint decisions and operational agreements among operators on key parameters such as baseband capacity split ratio, handover and performance KPIs.

Global active sharing experience

Globally, operators have adopted active sharing to save on network capex and opex. It has been seen that network sharing works best between similar-sized operators as commercial negotiations are complex and require a careful balancing act. It is essential to ensure a balance of future network deployment, an adequate split of capacity/quality of service, and reciprocal compensation. Different-sized operators can resort to roaming agreements.

While developed markets have moved to service and user experience differentiation, markets in the Asia-Pacific, including India, still rely heavily on network and price differentiation. Moreover, operators are addressing the rural broadband coverage challenge by collaborating through active network sharing. Globally, operators have undertaken active infrastructure sharing for expanding coverage in rural areas, cost-effective deployment of 3G and LTE, provisioning of network coverage for operators that have limited or no coverage, increased spectrum bandwidth through pooling, accelerated launch of services by operators and reduction in infrastructure redundancy.

Scope for India

In India, execution-related challenges can be a deterrent to the wide-scale adoption of active sharing. Lack of trust and cultural mismatches among operators, with no neutral third party to facilitate and play an active role in bridging differences, as well as difficulties in agreeing on common staffing, investments and vendor strategy can be major bottlenecks. To this end, operators must look for partners with similar networks in terms of size, coverage, market share and target markets. Second, active sharing gives operators access to each other’s costs, operations and technology. This can be risky due to the competitive nature of the Indian market, where operators tend to protect confidential data about pricing, service packages and network development. To address this issue, operators can outsource the facilitation and management of the sharing process to neutral third parties.

In India, incumbent operators continue to differentiate themselves on the basis of network coverage. Active infrastructure sharing (particularly with new entrants) significantly reduces the opportunity for incumbents to compete on the basis of coverage. In such a scenario, moving from coverage-based differentiation to service-based differentiation will be crucial.

Based on a presentation by Bharat Sachdeva, Senior Consultant, Analysys Mason

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