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Growing Interest - Network sharing finds strong acceptance in both mature and developing markets

February 15, 2010

Network infrastructure sharing and outsourcing are being increasingly accepted by mobile operators around the world as effective ways of cutting down coverage costs and reducing the time-to-market.

Network sharing appeared on the industry's radar as early as in 2001 in Europe during the 3G licence awards as operators sought ways to save money after spending billions on spectrum licences. A number of announcements were made, but the practice did not gain traction and the early interest in infrastructure sharing evaporated soon. However, as mobile communication undergoes a transition from second-generation voice services to third-generation data networks and, in some cases, to fourth-generation networks, the huge investment required to deploy hardware has become a huge challenge. Moreover, with the global economy still finding its way out of the recession, many operators are discovering that the financial markets no longer have the same interest in investing in telecommunication services. These factors have paved the way for a return to network sharing in both mature and developing markets, with 3G providing an added impetus.

Europe has seen a flurry of deals in this space in the past two years with network sharing being adopted by leading players like Vodafone and Telefonica. Vodafone has been propagating network sharing for 3G and is using it in many of its international markets including Australia, Egypt, India, Ireland, Italy and Spain. Perhaps, its most well-known network-sharing agreement is with Orange in the UK, where the two operators are sharing their RAN infrastructure. T-Mobile and 3 have announced their network-sharing agreement in the UK following the Vodafone-Orange deal.

Infrastructure sharing has also gained traction in emerging and developing markets, with regulators identifying the benefits of passive infrastructure sharing and encouraging cooperation within the industry. Passive infrastructure sharing is a standard industry practice in India today and is rapidly gaining momentum in the Middle East and Africa.

Network sharing across regions

Infrastructure sharing is on its way to becoming a key trend in this region. In early 2009, the European market reached tipping point as mobile operators, faced with tremendous pressure to reduce opex and capex while coping with the rapid growth in data traffic, opted for network sharing.

In the biggest deal of its kind, Vodafone and Telefonica agreed to share their network infrastructure in four European countries in 2009 to meet the surging demand for mobile broadband. The deal, covering Britain, Germany, Ireland and Spain, was intended to reduce expenses (spurred by the economic downturn) and develop a more flexible attitude towards equipment ownership. The companies agreed to share sites, equipment like masts and power supply, but kept their own radio equipment and vendors. Significant benefits of this deal are likely to be realised from fiscal year 2010-11 onwards.

In March 2009, Tele2 and Telenor announced their plans to build a joint 4G network in Sweden through Net4- Mobility, a joint venture (JV) for network construction and spectrum sharing.Telenor also holds a 4G licence in Norway where it has started testing long term evolution technology. The rollout of Sweden's most extensive 4G network was started in December 2009 with equipment supplied by Huawei. By 2013, operators expect to cover 99 per cent of the population. With this partnership, operators will share the existing 900 MHz GSM spectrum and extend their GSM network by up to 50 per cent to support voice services on the new network.

The UK also offers an interesting case study in network sharing. Deutsche Telekom and France Telekom plan to merge their UK operations (T-Mobile UK and Orange UK respectively) into a 50:50 JV. The deal, however, has come under the scrutiny of the regulator. The agreement, if approved, will create a new market leader with over 33 million subscribers and 43 per cent market share. It is expected to generate synergies worth Euro 4 billion, with opex-based synergies reaching an annual growth rate of over –£445 million from 2014 onwards, through savings in network and IT expenditure, and marketing and distribution. The JV is also expected to invest –£600-–£800 million in integration costs related to the decommissioning of mobile sites and the streamlining of operations during 2010-14.

This deal brings the prospect of a single network market closer to reality.Orange and T-Mobile will have the opportunity to combine their 23,000 2G base station sites as part of their merger.But any attempt to consolidate their 3G networks will bring Hutchison's 3UK into the equation since T-Mobile and 3UK had formed a JV called Mobile Broadband Network Limited (MBNL) in December 2007. MBNL has already deployed over 7,000 base stations and is now consolidating the radio access networks across the UK. The integrated 3G network will reduce the number of radio sites from 18,000 to 13,000, thereby leading to substantial cost reductions.

In July 2009, Telecom Italia and 3 Italia signed a three-year network-sharing agreement to build 2,000 sites across Italy.Both operators are retaining their ownership of the network infrastructure but will open sites to house each other's equipment. The agreement conforms to the 2003 Electronic Communications Code, which calls for more efficient use of network infrastructure. The operators expect cost savings of around 30 per cent.

Middle East North Africa

In the Middle East North Africa region, national roaming is used extensively in Jordan, Morocco, Oman, Saudi Arabia and the United Arab Emirates (UAE). In the fixed line segment, unbundling is now starting to gather pace with Egypt and Saudi Arabia leading the pack. With more than 10 fixed and mobile licences issued over the past two years, infrastructure sharing offers a potential opportunity for all stakeholders in Egypt, Kuwait, Qatar and Saudi Arabia.In liberalised fixed markets like Bahrain, Egypt, Morocco and Saudi Arabia, growth and success rely extensively on the sharing of the incumbent's local loop due to the difficulty in rolling out competing access networks. Market reports indicate a 19 per cent growth in the Moroccan broadband market within six months of the unbundling of the local loop.

On the mobile front, this is a growing trend in the region. Mobiserve, a leading infrastructure solutions provider, has built and is maintaining a number of shared sites for the region's leading operators like du in the UAE; Mobinil, Vodafone and Etisalat in Egypt; Djezzy and Lacom in Algeria; and Tunisiana and Orange in Tunisia.

In April 2009, Zain Kenya and Essar Telecom Kenya signed an agreement to share 300 base stations over 15 years in Kenya. This deal signifies that regional operators are now beginning to shift their focus from operating networks to selling services. Analysts predict that Zain would sign more infrastructure-sharing deals in its operational countries in the Middle East and Africa. MTN, Africa's largest operator, is also a strong proponent of infrastructure sharing. The company, which primarily engages in passive infrastructure sharing, shares over 30 per cent of its base station sites in South Africa and is also opting for transmission infrastructure sharing. For this, it has partnered with other telecommunication operators to roll out 5,000 km of fibre optic cables.


China, India, Indonesia, Sri Lanka and Bangladesh are supporting passive infrastructure sharing in order to prevent large-scale network duplication and the enormous costs involved in network buildouts. In China, operators will be required to share towers and the fibre pipes that connect the towers to the base stations.The policies apply primarily to the new 3G network construction projects, rather than to the existing 2G infrastructure.

In January 2010, China Telecom and China Unicom agreed to build 500 3G base stations together in Shanghai. The deal is expected to save $43 million. However, there have not been any announcements regarding shared 4G rollouts. Meanwhile, operators in Japan, the most advanced country in this market, are building mobile towers separately with the first launches expected at end-2010.

Clearly, the telecom industry has witnessed a major upheaval over the past few years. Once closely guarded, mobile networks are now being opened up to competition and are even being shared at the active layer. Infrastructure sharing has clearly emerged as a compelling proposition for operators as they contend with saturated markets and the exponential growth in network traffic, and accelerate their expansion into economically unviable areas at lower costs.


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