Most recently, two fierce Italian telecom competitors with pending legal and regulatory claims resolved their differences and decided to share infrastructure. They are now jointly planning the rollout of their Next Generation Networks and they adopted a cooperation model open to all interested operators. This shift is a direct result of the need to focus on commercial offering and the drive to commoditize telecom networks.
This trend is growing in both developed and developing markets. In the Middle East and North Africa (MENA) region today, telecom networks are almost in every corner around us, yet the number of telecom operators is set to grow further. Policy makers and regulators understand the positive impact a balanced number of operators can have on competition and consequently on the economy as a whole. This raises a number of questions to answer: are investors still interested to fund more networks? Will those networks be profitable? And are there still enough available locations to deploy those networks without congestion risks?
Developed markets and recently developing markets have reached the conclusion that sharing telecom infrastructure can yield positive outcomes if managed properly. It mainly helps achieve the following:
1. Rationalized investments
It is not a hidden secret that building telecom networks is a costly activity. “Investment studies conducted during the early 3G hype in Europe put the average investment per 3G subscriber at around $500,” noted Bahjat El-Darwiche, a principal in the communication and technology practice with Booz & Company. “Sharing the cost to the 3G infrastructure buildup can generate savings of up to 40%,” he added. Sharing infrastructure can save critical investments thus significantly improving the profitability of the concerned operators
2. Develop new revenues
For incumbent operators in markets under liberalization, offering network components to competitors can generate new sources of revenues that would offset any potential losses from retail competition. “Sharing infrastructure can exceed 15% of an incumbent operator’s total revenues,” said Louay Abou Chanab, a senior associate in the communication and technology practice with Booz & Company.
3. Release capital
Competing operators, incumbents or new entrants are looking to diversify their revenue base and hence invest in different ventures locally or abroad. Sharing infrastructure allows all market players to release badly needed capital to invest in strategic ventures. In the case of India, $4 billion can be saved by 2010 if at least two operators share the needed 240,000 towers to improve coverage. The Indian government is even subsidizing towers should three or more operators decide to share it.
4. Improve competition
Infrastructure sharing has a dual impact on competition. On the one side it decreases entry barriers for new operators. Interested players will find it more appealing to enter that specific market given the ease with which they can start offering commercial services. From another perspective, operators now have less pressure to deploy networks and hence can shift their focus to innovation and better customer service. Both factors positively impact competition to the benefit of end-users.
5. Optimize use of scarce resources
Policy makers and regulators struggle with allocating frequencies to new entrants; municipalities also struggle with rights of way to allow the deployment of fixed networks. “Infrastructure sharing can alleviate some of the pressure we now have on allocating scarce resources to multiple operators,” said El-Darwiche. This optimization also serves to reduce the negative impact telecom networks may have on the environment.
A wide variety of infrastructure sharing forms can be leveraged by operators, policy makers and regulators. Sharing can focus on passive or active components of the network. For clarity, passive components are those that do not carry any electronic signals and can include mobile towers, ducts and even electric supply; active components on the other hand carry electronic signals and can include leased lines, switches and antennas.
In recent times, many innovative network sharing solutions have been implemented on both fixed and mobile sides. Stokab for instance, owned by the city of Stockholm, is building and operating a fiber-optic network in the city of Stockholm that is open to all service providers on equal terms. Stokab started in 1994 and now has coverage in over 27 municipalities in Sweden and is selling access to over 60 operators including the incumbent.
On the mobile side, a good example is one where Orange and Vodafone both agreed to share their respective networks in the UK and Spain. While each operator will still manage his own traffic independently, the UK sharing agreement will reduce capital and operating costs by up to 30% and in Spain it will reduce number of sites by around 40%.
Yet, the success of infrastructure sharing highly depends on key success factors. At a minimum, regulators should consider publishing certain safeguards as is the case in Jordan and Nigeria. Both countries have detailed certain behavior on the use of capacity, namely that it should be used on a first come first served basis and that any unused capacity should be returned.
Regulators should also consider pricing regulations for certain forms of infrastructure sharing like unbundling or site sharing; ideally, prices should be cost-based. What regulators should also aim to achieve is proper enforcement of the policy. It is foreseen that disputes will arise when sharing infrastructure. Regulators need to be ready to introduce regulatory compliance measures or intervene to resolve disputes.
In summary, it is important to seize the opportunity presenting itself today in the MENA region. While we have some successful examples, like in the case of Morocco where unbundling grew the broadband market by over 19% within six months, we need to maintain the momentum going forward. An incentive-based regulatory regime might significantly contribute to developing regional telecom markets and, in turn, the overall economy while rationalizing investments.
Bahjat El-Darwiche is a principal and LOUAY ABOU CHANAB is a senior associate in the communication and technology practice at Booz & Company
