The Network Sharing ConundrumNovember 19, 2010
By Sharad Sharma, Senior Consultant, Coleago Consulting Ltd
Network sharing is gaining momentum
Mobile operators worldwide are struggling to increase the ARPU where voice, the main source of revenue source is commoditised and the data is yet to carve its way to be a high revenue generator. However, in order to maintain the technological leadership in the market, high investments are still needed in the networks whether it is a developed economy or a developing economy. The operators are facing a big challenge to justify the investments in the network. As a result operators look to identify cost cutting opportunities. Some of the costs saving initiatives are easy to tackle but the others like network sharing and network outsourcing involve business transformation of high degree.
Network sharing as a cost saving initiative has been gaining momentum in the different countries but also to improve performance. Tower sharing and national roaming has been around for quite a while now with operators across the globe are sharing towers for speedy network deployment. Originally Network Sharing was looked at in the light of revenue generation for incumbents and a more favourable to greenfield operators, helping the latter to increase roll out coverage faster. However, today network sharing is viewed from the angle of cost reduction.
Forming separate entities to pool tower assets or an entity to manage a consolidated network in the case of RAN sharing are of interests to many operators. However, there may be trouble ahead if such agreements are not thought through correctly: A cookie will always taste different when two different people make it even if it is the same recipe. These initiatives are now a trend and the decision to implement is taken without a detailed assessment of the opportunity. It is very important to assess the market dynamics and company’s own capability before actually going ahead with the network sharing. Many questions need to be answered before making a decision as to the network sharing model, the partner, the scope and the structure of the agreement. Two of the major questions that arise are the risk of losing the network related competitive advantage and the risk of degraded quality.
Network as a competitive advantage
The increasing number of smart phones is making the customers now much more aware of network quality / capacity / congestion as variations in service quality for data services are much more apparent and much more frustrating. Operators have pursued different strategies in terms of network investment for data capacity and as a result there are greater variations in network performance and customers are more aware of the differences. As a result network once again has become a source of competitive advantage. This may well lead operators to turn away from network sharing deals as they would not want to neutralise their advantageous position.
But are these strategies giving an operator a sustainable competitive advantage or is it just a short lived like any other voice quality improvement that the customers forget after all operators achieved equality. On the other hand, is it possible to gain this competitive advantage by a cost saving initiative like network sharing? The answer depends on the case.
For example, in the UK, most operators in UK claim 99 per cent geographical coverage. Now boasting of superior network quality with a combined network can be seen in the advertising campaigns. The operators like ‘3’ and T-mobile after implementing RAN sharing are claiming a better network coverage and quality while T-Mobile now ringing bells of combined Orange and T-Mobile network. Vodafone and O2 in turn moved into a tower sharing model. However, in developing countries where the networks are less mature, the implications are different because geographic coverage roll-out continues to be an issue.
Network capacity and congestion
An issue with network sharing arises in the context of capacity upgrades. Particularly in respect to mobile broadband the challenge is forecasting the capacity requirements not the network sharing or technology. If the forecasting is smartly managed for both the radio access and transmission backhaul, capacity issues could be overcome easily. However it does raise issues with regards to sharing sensitive commercial information between competitors.
Should we share now or wait?
When competition is based largely on price, the competitive advantage resides with the lowest cost operator. The lowest cost operator is probably an operator with a network sharing deal in place. An operator who currently enjoys a leading market share position and therefore decides to delay sharing may well find that when their advantage is neutralised, there are no network sharing deals to be done as all competing operators have entered into agreements. In the long run this market leader may well suffer because he no longer has the lowest cost operation and therefore would be unable to compete on price. Resolving the conundrum requires careful consideration and a valuation of the relative benefits of network superiority versus cost sharing. As with any strategic decision, timing is everything.