fundamentals of mobile network sharing

Network Sharing Fundamentals.(Updated & revisited thoughts on the benefits of network sharing)

Dr. Kim Kyllesbech Larsen

.

Why sharing a part or all of the mobile network?

Between 40% to 50% of sites are low or no profitable (“the ugly tail”)

Frees up cash to be spend in areas that matters (“Save for Growth”).

Effective Opex & Capex measure increasing operational efficiencies.

Increased network quality for a lot less than standalone (“Best network”).

Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals 2

Network sharing boils down to 4 major considerations.

Who to share with? (your equal, your better or your worse or all)

What to share? (sites, passive, active, frequencies)

Where to share? (rural, sub-urban, urban, all, etc.)

How to share? (“the legal stuff”)

Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals 3

Mobile Emerging markets – growth slowing down.

Revenue 2009 – 2012 + 48% pa.

Revenue 2012 – 2017 9% pa.

Opex 2012 – 2017 + 12% pa.

& 3G has to get started - Top-line pressure (voice & sms).- Opex pressure.

Revenue 2009 – 2012 + 48% pa.

Revenue 2012 – 2017 9% pa.

Opex 2012 – 2017 + 12% pa.

& 3G has to get started - Top-line pressure (voice & sms).- Opex pressure.

MEA Example

Emerging Market Growth on expense of profitability Long-term development troublesome.

Emerging Market Growth on expense of profitability Long-term development troublesome.

134%

88% 111

%

76%

68% 112

%

55%

60%

60%

10%

20% 25

%

Mob%

3G%

4Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.

Tellabs global study1 …The End-of-Profit.The end to the mobile-only business model as we know it?

Mobile carrier study“End-to-Profit” (Tellabs study).

Businessmodelbreakdown

Mounting cashpressure

• Risk of End-of-Profit next 5 years?

• Un-managed mobile data demand.

•Short-term price-plans wo long-term view.

• Risk of End-of-Profit next 5 years?

• Un-managed mobile data demand.

•Short-term price-plans wo long-term view.

What can be learned?

Causes:- Modernization pressure.- Exponential data growth.- Capacity Crunch.- Need for more spectrum.- LTE introduction.

- Revenue slow down.- Decline of legacy business.- Increased competition as market

saturate.- Increased cost.


Europe 2020 … A soft landing?

Europe Mobile Revenue

Europe Mobile Opex

Europe Mobile Ebitda

2008

2002

2020

37%

38%

Just prior to crisis

2005

35%31%

38%

Constant margin

2010

-15%

+15%

Inflationary growth

CAGR 0.8%

CAGR 1.9%

Total Revenue

Technology Cost (ca. 15% – 20%)

Usage Cost−

Market Invest SAC & SRC

−

= EBITDA (WEU ca. 37% 1)

Personnel Cost

Other Cost

−

−

−

Network Depreciation−

Spectrum Amortization−

Capex (new rollout < +10+% of Revenue)−

1 BoA ML Global Wireless Matrix 1Q11, margin data for 4Q 2010.

Spectrum invest (0.8 – 0.05 € per MHz-Pop)−

Red color represent Technology driven cost

+ New Revenue?

Defend philosophy!Stop / Slow Revenue Decline

New business!?QoS, LTE, IoT, Media,

FMC, …

Efficiency gameOptimize: Defend / Slow

Ebitda Decline

Increased cash pressureNew technology /

Modernize

The Hunt for $30+Bn

1.9%

0.8%

CAGR 13%Max 30+%

6Dr. Kim Kyllesbech Larsen , Network Sharing Fundamentals.

Mobile broadband journey … be prepared.The lessons learned from mature markets.

Messaging revenue decline (particular for Smartphones & OTT)Messaging revenue decline (particular for Smartphones & OTT)

Voice revenue decline (faster than data revenue uptake)Voice revenue decline (faster than data revenue uptake)

Cash and margin pressure from new technology introduction.Cash and margin pressure from new technology introduction.


Revenue Decline

&

Profitability Squeeze

Business model

Breakdown

Data Tsunami

Spectrum

Crunch

Transformor

Perish

8Dr. Kim Kyllesbech Larsen, , Network Sharing Fundamentals..

So why should you share your network?

OPEX Saving (from 30% pa )

Capex prevention (>

30+%)

Organizationally efficiency

Boost spectra

l effic

iency

Environmental Improvements

More coverage for less

OPEX prevention

Operational efficiency

Instant Cell Split

Extended coverage

“cheap” M&A alternative

Rollout speed

Acquisition pre-cursor


Going Dutch – converging to “The rule of Three”.

Initial discussion with Orange NL started in mid-2001.

JV operational from mid 2002 to 2004.- Site & ancillary sharing.

- Common plan & build organization.

- No common procurement.

JV closed down in YE 2004.- Staff resistance (them vs us)

- Different strategic objectives.

- TMNL decides no need for ancillary sharing.

- More economical to share own infrastructure than common.

Oct 2007 T-Mobile acquire Orange; network consolidation started.

Nov 2008 all Orange customers were migrated to T-Mobile’s radio network

2001 - 2004: 3G sharing – Capex avoidance strategy.

13Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom

Kim Kyllesbech Larsen, Technology - T-Mobile. 15

T-Mobile US – Cingular – The GSM Factory.

Geographical GSM RAN sharing agreement.

T-Mobile US (via JV) responsible for NYC Metro areas. Population ca. 22+M #Base Stations ca. 2,300 (at time of breakup).

Cingular (via JV) responsible for California/Nevada areas. Population ca. 40+M (TMUS had 1.7M subs @ breakup in CA/NV) #Base Stations ca. 5,000 (at time of breakup).

Venture discontinued in 2004 with Cingular – AT&T Wireless merger. TMUS pays (net) $2.3B for California/Nevada + add spectrum optionality. TMUS forced to spin-off 10MHz in NYC Metro markets (very painful!). Nationwide roaming agreement.

2001 – 2004: Regional GSM Sharing JV.

Deutsche Telekom sharing examples (1 of 4).

T-Mobile– Orange NL merger… 2008 – 2009.

Price of Orange NL was ca. €1.3B or ca. €600 per customer.

One single network by 2010 with

- Ca. 5,000 fewer radio nodes and

- Ca.3,300 (ca. 50%) fewer site locations.

Securing future competitive growth.

leveraging on higher spectral efficiency by consolidating.

On track to deliver synergies in excess of €1+B by 2013 (in time & money).


2008 Acquisition.

TMUK – H3G 3G RAN sharing – more for less.2007: Joint venture design, plan & build-co MBNL Ltd.

TMUK adds 3,000 – 5,000 3G Node-Bs that would otherwise not have been financially/economical feasible.

Common 3G plan & build organization (MBNL Ltd).

Positive TMUK EBITDA net of £50m (ca. 4% “run-rate” avoidance).

– H3G benefits from faster and much more efficient deployment .

Positive annual Capex benefit of £79m by 2012 (18% “run-rate” avoidance).

– H3G capital benefits far in excess of £0.5B (estimated saving & avoidance).

Substantial site lease cost savings and cash prevention expected.

– From 2011 and onwards.


T-Mobile– Orange UK Network JV.

1 single network by 2014ish with 30%-40% denser grid than standalone.

- Starting point a network of 14,000 sites, today the end-game is 18,500.

Total 9,000 site locations will be terminated (33% reduction)

Leveraging higher spectral efficiency by consolidation.

Large and readily achievable synergies in both Network & IT.

Significant synergies with NPV in excess of £3.5 bn.

- Opex run-rate synergies ca. 35% (on relevant cost!)

- Capex “run-rate” synergies up-to 25%.

Integration & termination cost of up-to £1.2 bn.

EE has the BIGGEST mobile network(s) in UK which will remain so even after consolidation and integration has been finalized.

2009: EE Network (ad)Venture – The BIGGEST Network in UK!



Deutsche Telekom sharing examples (2 of 4).Going Dutch – converging to “The rule of Three”.

Initial discussion with Orange NL started in mid-2001.

JV operational from mid 2002 to 2004.- Site & ancillary sharing.

- Common plan & build organization.

- No common procurement.

JV closed down in YE 2004.- Staff resistance (them vs us)

- Different strategic objectives.

- TMNL decides no need for ancillary sharing.

- More economical to share own infrastructure than common.

Oct 2007 T-Mobile acquire Orange; network consolidation started.

Nov 2008 all Orange customers were migrated to T-Mobile’s radio network

2001 - 2004: 3G sharing – Capex avoidance strategy.


T-Mobile– Orange NL merger… 2008 – 2009.

Price of Orange NL was ca. €1.3B or ca. €600 per customer.

One single network by 2010 with

- Ca. 5,000 fewer radio nodes and

- Ca.3,300 (ca. 50%) fewer site locations.

Securing future competitive growth.

leveraging on higher spectral efficiency by consolidating.

On track to deliver synergies in excess of €1+B by 2013 (in time & money).


2008 Acquisition.



T-Mobile US – Cingular – The GSM Factory.

Geographical GSM RAN sharing agreement.

T-Mobile US (via JV) responsible for NYC Metro areas. Population ca. 22+M #Base Stations ca. 2,300 (at time of breakup).

Cingular (via JV) responsible for California/Nevada areas. Population ca. 40+M (TMUS had 1.7M subs @ breakup in CA/NV) #Base Stations ca. 5,000 (at time of breakup).

Venture discontinued in 2004 with Cingular – AT&T Wireless merger. TMUS pays (net) $2.3B for California/Nevada + add spectrum optionality. TMUS forced to spin-off 10MHz in NYC Metro markets (very painful!). Nationwide roaming agreement.

2001 – 2004: Regional GSM Sharing JV.

Deutsche Telekom sharing examples (3 of 4).


Deutsche Telekom sharing examples (4 of 4).TMUK – H3G 3G RAN sharing – more for less.2007: Joint venture design, plan & build-co MBNL Ltd.

TMUK adds 3,000 – 5,000 3G Node-Bs that would otherwise not have been financially/economical feasible.

Common 3G plan & build organization (MBNL Ltd).

Positive TMUK EBITDA net of £50m (ca. 4% “run-rate” avoidance).

– H3G benefits from faster and much more efficient deployment .

Positive annual Capex benefit of £79m by 2012 (18% “run-rate” avoidance).

– H3G capital benefits far in excess of £0.5B (estimated saving & avoidance).

Substantial site lease cost savings and cash prevention expected.

– From 2011 and onwards.


T-Mobile– Orange UK Network JV.

1 single network by 2014ish with 30%-40% denser grid than standalone.

- Starting point a network of 14,000 sites, today the end-game is 18,500.

Total 9,000 site locations will be terminated (33% reduction)

Leveraging higher spectral efficiency by consolidation.

Large and readily achievable synergies in both Network & IT.

Significant synergies with NPV in excess of £3.5 bn.

- Opex run-rate synergies ca. 35% (on relevant cost!)

- Capex “run-rate” synergies up-to 25%.

Integration & termination cost of up-to £1.2 bn.

EE has the BIGGEST mobile network(s) in UK which will remain so even after consolidation and integration has been finalized.

2009: EE Network (ad)Venture – The BIGGEST Network in UK!



Vodafone sharing examples.


Vodafone – Orange sharing … 2007.

Rural Area / Geographical sharing.

National roaming like sharing concept with joint field services.

Rural areas with population of less than 25,000 pops.

Ca. 1,500 Node-Bs where shared by YE2007 with max 5,000 by YE2009.

Venture frozen in 2009 as VF announced sharing deal with Telefonica.

Network sharing agreement in Spain and Romania.

(i.e., VF-Europe Opex in 2008 was £16.4 bn and TF-Europe 2008 Opex was in the order of £13 bn).Kim Kyllesbech Larsen, Technology - T-Mobile. 19

Vodafone – Telefonica sharing … 2008.

Passive RAN network site sharing.

Traffic managed independently of each other.

Customers expected to benefit from improved coverage.

Benefits in the order of ”hundreds of million” £ for both over next 10 years.

Today (May 2012) they share 4,000 site locations.

Network sharing agreements for Germany, Ireland and the UKwith detailed discussions ongoing in the Czech Republic.

(i.e., VF-Europe Opex in 2008 was £16.4 bn and TF-Europe 2008 Opex was in the order of £13 bn).

Vodafone – Telefonica sharing … 2012.

Passive sharing including backhaul.

Common Build JV, planning & design separately.

1 single network by 2015 with doubling the site count to standalone.

- Each has ca. 10,300 sites today with shared end-game of 18,500.

Total of ca. 2,000+ site locations will be terminated (10% reduction).

Geographical (50%-50%) sharing (i.e., London halved).

No Frequency sharing.

Individual supplier relationships (missing out on procurement scale?).

Massive Opex and Capex avoidance.

This is NOT an Opex reduction game but rather matching EE super-grid.

Getting a lot more for less …. Capex & Opex avoidance.


14Dr. Kim Kyllesbech Larsen

The Good and The Ugly.Recipe for successful merger (or network sharing) and is matching technology landscape and strategic outlook. Matching spectrum position and network grid are much more valuable (short-term) for synergies than complementary spectrum.

Sprint - NextelAT&T – Cingular merger

Matching technology landscape and strategic outlook.

Good complementary spectrum (high grid match).

Fairly symmetric & matching business structures and models.

Mismatch in technology landscape & strategic outlook.

Complementary spectrum but relative low grid match.

Very different business structures and models.

Dominated by Nextel


Expectation management – the full sharing potential.

Total Opex100%

Technology Opex

NT 14%

RANsaving

RAN 7%

Cluster Opex40%

Illustration

Expect up-to 35% saving on Tech OpexExpect up-to 35% saving on Tech Opex

Up-to 5% on Total Corporate Opex Up-to 5% on Total Corporate Opex

Termination cost 1.5 – 3+ × of Opex savingsTermination cost 1.5 – 3+ × of Opex savings

Integration Capex synergetic with BaU CapexIntegration Capex synergetic with BaU Capex

Instant Cell split potential Enhanced CapacityInstant Cell split potential Enhanced Capacity

Spectral efficiency gains (>10%+)Spectral efficiency gains (>10%+)


Rollout PhaseUK: 3G T-Mobile – 3 UK

Steady StateUK. T-Mobile UK – Orange JV (EE Ltd).

Stages of sharing benefits.The best sharing strategy depends on the business cycle and technology age.

High Capex prevention. Opex prevention. Cash optimized startup. Best network.

Little Capex benefits. Opex savings. Significant write-off. High re-structuring cost. Extended coverage.

High Capex prevention. Opex savings. Minor write-off. Re-structuring cost. Instant cell split. Better network.

< 5 years 5+ years

UMTS - GSM LTE

> 5+ years

UMTS

Passive sharing: Site Lease & Civil Works,Mast/Tower sharing, Ancillary & Rack sharing, and Backhaul Sharing.

Active sharing: e.g., Frequencies, TRXs, PAs, Baseband, CPU, ports, ….

ModernizationPoland: PTC – Orange incl. LTE

GSM – UMTS(LTE piggybacking)

Illustration


Restructure cost can be significant. Although contract termination can be less costly due to longer operational period.

Termination• Site lease.• Site restoration.• Service

Contracts.• Personnel cost

Other• JV overhead• Legal, etc..

Restructuring cost can be low if little legacy infrastructure is present.

If decision for network sharing is taken in the renewal / obsolescence phase write-off exposure can be relative light both for equipment and site-build.

As most of the network has been deployed at this stage the write-off exposure can be significant even if equipment can be re-used.

Relative low exposure if little legacy infrastructure is present.

Economics of RAN sharing benefits.

Rollout PhaseBulk (>80%) of sites and nodes to be deployed.

Steady State80% of coverage and sites deployed. Mainly capacity additions and coverage maintenance.

Modernization/ObsolescenceActive element / node replacement, technology migration. Site consolidation.

Passive sharing• Site build• Mast• Rack / Ancillary

Active sharing• MW/Fiber • Electronics• Spectrum• Resources

Passive sharing

Low Capex levelActive sharing

Passive sharing

Medium Capex levelActive sharing

Substantial Capex

Capex Synergy

= Low = HighSynergy potential

Opex prevention• Site lease• Non-telco services• Telco services• Energy• Resources

Opex saving if absolute number of site locations are reduced.Primarily Opex prevention in case of site number expansion.

Opex saving if absolute number of site locations are reduced.Primarily Opex prevention in case of site number expansion.

OPEX SynergySharing stages Restructure Cost

= Low = HighCost exposure

Write-off

Illustration


100%50%0%

Sites

0%

20%

40%

60%

80%

100%

Cu

mu

late

d R

ev

enu

e (

Tra

ffic

)

The ugly tail … the low profitability areas.Should drive sharing in low-traffic areas

50% revenue ≈ 10% sites

Low profitability sites

Top 30% sites ≈ 80% revenue.

50% sites takesless than 10% revenue

Illustration

Rural-like areasSub-urbanUrban


Frequency(MHz)

Site(acq. + build)

Radio(electronics)

Backhaul(transport)

Backbone(transport)

Core(switch & control)

BSS(bill & care)

Capex prevention

Efficiency enabler 40%-60% < 35% up-to 50% up-to 50% Partly

possible Less likely

Opex prevention

Efficiency enabler < 35% ca. 35% scale

discountscale

discountPartly

possible Less likely

Regulatory complexity HIGH LOW LOWER LOWER LOWER HIGH HIGH

Network Sharing can provide better economics and market timing …

BTS & NODE-B

eNodeBBSS

BSS

MNO 1Core

MNO 2Core

plmn 1

plmn 2

plmn 1 + plmn 2(optional)


Anatomy of network sharing.RAN sharing guaranties competitive differentiation, operator independency and vast consumer quality improvements.

• Sharing: Costly Radio Access Network infrastructure will be shared,

• Not shared: All core network and service infrastructures that provides respective customers with differentiated services, applications, handsets, rate plans, etc.

• Result: A network with greater capacity (i.e., instant cell split) and improved coverage.


Network Sharing Strategies

Network sharing.A mean to close the mobile broadband coverage gap (in CEE).

Substantial improved coverage, capacity boost and

quality of services to

the consumer at a Quality Level

NOT

economical viable in standalone.

Substantial improved coverage, capacity boost and

quality of services to

the consumer at a Quality Level

NOT

economical viable in standalone.

Safe for Service by Sharing.


• Opex avoidance & savings.• Substantial Capex avoidance.

• Shared Modernization.• Shared LTE deployment.

• A Much better network.

• Opex avoidance & savings.• Substantial Capex avoidance.

• Shared Modernization.• Shared LTE deployment.

• A Much better network.

Benefits.

UMTSGSM

2G, 3G & LTE RAN incl. BACKHAUL SHARE

CORE CORE

SERVICES SERVICES

BILL PRICE BRAND SALES BILL PRICE BRAND SALES

Rural areas1

LTE SHARING800, 2100 & 2600 MHz

GSM900 & 1800

GSM900 & 1800

2G, 3G & LTE RAN incl. BACKHAUL SHARE

CORE CORE

SERVICES SERVICES

BILL PRICE BRAND SALES BILL PRICE BRAND SALES

Urban areas1

UMTS900 & 2100

Note: frequency bands not to scale!

SHAREDOperator A Operator B

1 Note sharing spectrum between two (or more) MNOs might not be regulatory allowed.

Idealized Illustration

LTE

Network sharing flavors …

Capacity limited Coverage limited Rural

Passive sharing. shared transport (possible). Independent frequencies.

Active sharing (MOCN1) Shared transport. Frequencies sharing.

Geographic sharing. One frequency sufficient. Wholesale/cost-sharing.,

HLRHSS

Core Core

HSS

Shared site and passives Independent BTS, NB, eNB.

BSCRNC

BSCRNC

HLRHSS HSS

Shared Radio, aggregation & frequencies (optional).

CoreCore

BSCRNC

1 Multi-Operator Core Network supporting RAN Sharing, (*) For LTE there is no BSC/RNC, core networks connected directly to the eNode-B.

Site sharing (*) RAN Sharing (*) National Roaming (*)

HLRHSS HSS

BSCRNC

BSCRNC

Core Core

Wholesale arrangement, geographical partnership.


Common Frequency Sharing… Solution for low-demand, rural areas and symmetric demand scenarios.

Frequency pooling (*)

HLRHLR

1 operator share its spectrum with others.

Multiple operators pool their spectrum assets together and share total spectrum.

HLR

Shared Freq., Radio & aggregation.

CoreCore

1 MORAN = Multi-Operator Radio Access Network sharing of all active electronics with exception of frequencies. 2 MOCN = Multi-Operator Core Network = two core networks connected to 1 frequency. (*) For 3G network core networks connect to the RNC that then connects to the Node-B.

...

...

3GPP Release 8, 2009 (earliest) onwards with the following sharing concepts:

Gateway Core Network (GWCN) shared core network (CN) (multiple CNs connected to a common core, connected to the shared RAN).

MOCN: Multi-Operator Core Network where only the RAN is shared (i.e., NO common CN).

Introduction of Iu Flex allowing multiple CNs connecting to shared RAN.

Multiple core networks connected to a common radio access network (RAN) sharing a single frequency or a pool of frequencies.

Service requirements & capabilities not limited by the sharing requirements (i.e., resides in core network or service creation platforms above the core network).

Requires user equipment support (i.e., R8 or later). Non-supporting user equipment will ignore the broadcast system

information related to sharing functionality. Fairly complex coordination issues on resource allocation among

sharing parties, making this concept more interesting for low-traffic rural areas (where demand is no issue) or highly asymmetric traffic situations.

Shared IPbackhaul

eNode-BLTE


Network components mapped to network layers. The deeper into the network infrastructure is shared the more the sharing concept will appear as a merger or NetCo concept.

Radio AccessNetwork

CS & PSNetwork

VASNetwork

SignalingNetwork

IT & CSNetwork

Spectrum / Frequencies

GSM BTS GSM BSC GSM TRX 3G Node-B 3G RNC 3G Carrier & Channel

elements e-Node-B (LTE RAN) Backhaul (MW & LL) Routers, switches and

multiplexing SW Licenses &

features. NMS & operations. Etc.

Classical MSC/VLR R4 MSC Server &

Gateway Multiplexing GGSN & SGSN

(packet core). Evolved Packet Core. IP networks (routers,

FW, etc..) Backbone transport Interconnect NMS & operations. Etc.

Classical HLR NG HLR IN platform Interconnect NMS & operations Etc.

SMSC MMSC VMS WAP Portals 3rd party content NMS & operations Etc…

Billing system Rating Mediation CRM SAP/Finance

systems. Business Intelligence. Call center systems

(call routing, ..) OSS IT Operations. Etc.

Note: above categorization is guiding but not fully un-ambiguous.

Network SharingNetwork Merger – Netco concept


Why one should NOT commence Network Sharing.2 out of 3 NS deals considered are put on ice again!

Strategic lock-inDeal complexity

Asymmetric benefits High TerminationCost

Competitive disadvantage

Integration complexity

Growth limitationsHigh Assetwrite-off

Regulatory scrutiny

Loss of independence

Staff resistanceDivest / Spin-off / mergervery complex

Too high

integration cost

Complex Governance

Technology mismatch


Rural Tower & RAN Sharing scenario (illustration)Doing much more for a lot less refocus cash on areas that matters

Dismantling of surplus Tower locations

2G Tower locations upgraded to 3G

650 SRAN(new)

Shared Single RAN deployment

650 SRANShared

MNO1

650 TowersConsolidated

MNO2

Tower JV

500 Towers 500 Towers0 Node-B

500 old BTSxx% geo coverage yy% geo coverage

0 Node-B500 old BTS

No Re-use

Consolidation Harmonization

Today

+1.5–2 Years

Towers JV (IPO optionality) Single RAN Sharing (NetCo).

MoreRAN

Shared backbone

Shared backhaul

More Towers

NodeB

BTS

MNO2 CN

RNC

BSC

Much better & efficient network!

End-game: 1,000 Towers

MNO1CN

-35035%

1,000 TowersConsolidated

1,000 SRAN(LTE option) End-game

High Capex Synergies (>50%) by Joint procurement!

Real Opex saving!

Opex equivalent to 500 Towers (1+1 “=“ ½).

Better quality & more capacity (1 + 1 > 2 effect).

Favorable cash impact compared to standalone

Rural & Sub-urban Coverage focus ensure

configurationally & operational simplicity

High Capex & Opex avoidance, high

ROCE

No frequency sharing!


3-party rural network sharing (illustration only)Doing much more for a lot less optimizing cash and margin.

Dismantling of surplus Tower

locations

Tower locations upgraded to LTE as well

800 SRAN LTE upgrades (new)

Shared Single RAN deployment

800 SRAN2&3G + LTE

B

800 TowersConsolidated

C

Shared

350 Towers 440 Towers

800 SRAN2&3G Nodes

Consolidation Harmonization

2012

2014

Towers (Rural – Sub-urban Areas). Single RAN (SRAN) Sharing.

LessRAN

Shared backbone

Shared Backhaul

FewerTowers

NodeBBTS

A CNRNC

BSC

Optimized target

End-game: 1,000 Towers

B CN

-590~40%

1,000 TowersConsolidated

1,000 SRANMulti-mode End-game

A

600 Towers 350 SRAN2&3G

440 2G & 3GLegacy nodes

600 SRAN2&3G

C CN

eNodeB

• 800 Towers shared by 3.• 800 whilst effective paying for 267

(1+1+1 “=“ 1/3).• Improved network with 33% to

130% increase in sites.• Much improved TCO and ROI.• Low LTE entry cost and future

modernization cost.


National Roaming boils down to 3 major considerations.

No Coverage / No Network.

Wholesale Tariff better economicsthan Network Cost & Invest.

Long rollout lead-timeNational Roaming a timing-bridge.

Under-utilized network.(“plenty” of capacity)

Wholesale revenue at no or very little additional Cost and Invest.

Wholesale income more attractive than risk of competitor network access.

GUEST HOST


Profit & Loss … what to expect

Revenue

Technology Cost

Usage Cost−


−

= EBITDA

Personnel Cost

Other Cost

−

−

−



Capex−

Spectrum invest−


Revenue

Technology Cost

Usage Cost−


−

= EBITDA

Personnel Cost

Other Cost

−

−

−



Capex−

Spectrum invest−


Network SharingStandaloneRevenue

Technology Cost

Usage Cost−


−

= EBITDA

Personnel Cost

Other Cost

−

−

−



Capex−

Spectrum invest−


National Roaming

Capex prevention typically re-prioritized.

Opex savings & prevention

Personnel savings by resource sharing.

Less depreciation(& some write-off)

High usage cost jvf. Wholesale agreement

Personnel savings by redundancies.

Capex prevention.

Low depreciation charges (typically high write-off).

Higher Opex savings & prevention

It is far from obvious that National Roaming should be more economical than Network Sharing … Structurally it is more complex to get right.


National roaming … another way of sharing.Why National Roaming?• 1 party has coverage, the other not.• per Technology (i.e., GSM-only, UMTS-only, …).• Different regional spectrum positions.• Contiguous well-defined network (e.g., 50 to 100s of radio

nodes).• Often geographical splits

• Can also apply to infrastructure network sharing.

• Time to market.• Customer experience can be controlled independently by

Roamer.• Capacity is not an issue for the hosting MNO.• Attractive economics compared to building network:

• Provides very similar benefits to infrastructure sharing.• Roaming MNO gets Capex & Opex avoidance, but will have cost

associated with traffic on Hosting network.• Hosting MNO gets wholesale revenue typically in low-traffic areas

with low or no profitability (i.e., increased utilization & efficiency).

• Regulatory encouragement (or enforcement).• Relationships tends to be of temporary nature.• 2G & 3G National Roaming are standardized with working

technical solutions used in several countries between MNO and MVNO.

Typical Rural


(*) For LTE there is no BSC/RNC, core networks connected directly to the eNode-B possibly via IP aggregation & switching.

National Roaming (*)

HLRHSS HSS

BSCRNC

BSCRNC

Core Core


OpCo1 Host to OpCo 2 OpCo2 Host to OpCo1


National roaming … many case stories around the world!


(*) For LTE there is no BSC/RNC, core networks connected directly to the eNode-B possibly via IP aggregation & switching.

Typical Rural

National Roaming (*)

HLRHSS HSS

BSCRNC

BSCRNC

Core Core


OpCo1 Host to OpCo 2 OpCo2 Host to OpCo1

I have found2 no examples where an MNO decommissioned its network for national roaming.

1 Note both AT&T and VERIZON was very much against this FCC ruling as the correctly pointed out that it is very difficult to control & plan for mobile data traffic and that they were already spectrum constrained and therefore do not have excess capacity. 2 Though I have been part of discussions entertaining such an idea.

Some examples;• T-Mobile US (New York) & Cingular (California) – Terminated.

• T-Mobile US 2G roaming on AT&Ts network - Active.

• T-Mobile US 3G roaming on AT&Ts network – Not operational (too complex).

• FCC (US Regulator) issued a ruling (2011) requiring MNOs to sign mobile data national roaming1 agreements with anyone who asks (at reasonable terms & conditions … last not been specified by FCC).

• T-Mobile Austria on Hutch 3G network in rural areas – Active.

• Hutch on T-Mobile Austria’s GSM network – Active (decreasing)

• H3G UK on Orange GSM – Active (decreasing).

• O2 Germany, 2G national roaming on Deutsche Telekom GSM network outside their own 2G coverage (particular rural and sub-urban areas) – Terminated.

• T-Mobile UK and Orange UK mutual national roaming on each other’s 2G networks extending the coverage for both customer bases – Active.

• Free Mobile (Iliad) in France has a national roaming agreement with Orange. This agreement covers both 2G and 3G – Active.

• India is likewise (in)famous for many 2G (“3G”) national roaming deals between the as many mobile MNOs – Active (3G still a regulatory issue).

National roaming … can be a flawed business logic!

Why maybe not?• Firstly, complexity is not so much in the technical area but very much contractual and ensuring

sufficient risk mitigation against operational disruption.• Regulatory & competition authority issues

• If MNOs setup mutual agreements, Regulator might enforce those agreements onto other interested parties (i.e., see 2011 FCC Ruling).

• Further Regulator might decide non-compliance with spectrum utilization or conditions of the roaming party (i.e., its spectrum is no longer in use).

• Decommissioning of existing infrastructure and investments (i.e., write-offs).• MNOs could financial compensate each other if decom infrastructure would be taken into use by

Hosting MNO.• Operational risk of relying 100% on the other partners network.

• Compared with network sharing that provides for co-ownership & co-control of network.• Can be mitigated to some extend in contract and by choosing symmetric areas (i.e., ensuring

symmetric threat levels)• Can carry very substantial operational risks.

• Change of ownership.• Bankruptcy.• QoS & Customer Experience guaranty for 3G mobile data usage very difficult & carries great mutual

risks.• Change of mind / contractual (even illegal) break-up or non-compliance.

• Tends to be very complex commercial negotiations, resulting contracts, processes and procedures.


Profitability & cash crunch.

Incumbent spectrum crunch.

MVNO / tier-2&3 MNO appetite.

Profitability & cash crunch.

Incumbent spectrum crunch.

MVNO / tier-2&3 MNO appetite.

Other business models …LTE as a Service.

Enablers.

Emerging business models – LTE network factory

Attractive (startup) cost economics.

Relative low Capex – cash optimized.

Increased spectral efficiency & utilization.

Attractive (startup) cost economics.

Relative low Capex – cash optimized.

Increased spectral efficiency & utilization.

Provides.

MMEIMS

SmartCo SharedAll IP EPC

SHARED E-UTRAN (Yota or LightSquare model)

User Equipment (own, MVNO, MNO1, MNO 2 etc...)

Air-interface

Service clouds& Internet

access

MVNOsCableCos


access

MNO1


access

MNO2, etc...

Network Control& Service clouds& Internet access

SmartCo,Optional CDN &SDN

SmartCoe.g., 60+ MHz of

shared/ pooledspectrum

HSS

PCRF

P-GW

S-GW

MNO1 EPC MNO2 EPCetc..

Option:Small cell centric startup and Capacity as a Service.

Cash optimized startup via virtualization & OTT based services.


Regulatory support.

Spare Spectrum (i.e., typical Startup).

MNO & MVNO appetite.

Regulatory support.

Spare Spectrum (i.e., typical Startup).

MNO & MVNO appetite.

Other business models … ultra-efficient transformation.

Enablers.

Emerging business models – piggybacking on Virtualization & Cloud

PrivateCloud:

ProvidesMobile Core

NetworkFunctionalities

NetworkCorporation

Content & ServicesCloud

BSS & OSSCloud:

ProvidesMobile Core

NetworkFunctionalities Access

off the shelf OSS& BSS-light due

to wholesalebusinessmodel

New business model

Data-only QoS transparent network.

Network services to MNO & MVNO.

Dedicated OTT network services.

Data-only QoS transparent network.

Network services to MNO & MVNO.

Dedicated OTT network services.

Provides.

3rd parties delivers BSS /

OSS cloud services to

SmartCo (off-the-shelf)

3rd party, media companies, MNO/MVNO CDN & SDNs.

3rd parties (supplier) delivers core network functionality (i.e., HSS, PCRF, etc..)


Technology cost and synergy potential.

Illustration

Synergy potentialMobile ONLY

Share of Technology Opex

Managed services Network sharing

NT FTE Ca. 10% Typical 20%HC reduction

Typically Capex commitment

Min. 20% - 35%

NT Services Ca. 15% >35% but depends on network reduction.

Rental & Leasing Ca. 25% - 30%

Good savings potential, though risk

for future sharing optionality

>35% but depends on network reduction.

TransmissionCa. 5% - 10%

(can be a lot higher if majority leased transport)

Opex – Capextrade-off

More Opex – Capex trade-off

IT FTE 5% 10% - 20%HC reduction

Opex – Capextrade-offs

Minor opportunities <10% due to scale.

IT Services 25% Minor opportunities <10% due to scale.

Other 10% - 15% Minimum 10% pa At least 35%

€€€ (€)€€ (€)

Note: Above numbers serve as illustrations only. Different operations may have different Technology Opex distributions..


Key messages.What we need to be passionate about!

Network sharing provides cost reduction & increased quality.Network sharing provides cost reduction & increased quality.

Utilize technology to achieve the best operational performanceUtilize technology to achieve the best operational performance

Sharing models for mobile applies to fixed broadband as well.Sharing models for mobile applies to fixed broadband as well.

& don’t forget!& don’t forget!

Maybe Even more so!Maybe Even more so!

& increased complexity& increased complexity

RRH, SDR RAN, Single-RAN, FTTS, Virtualization, Cloud, …RRH, SDR RAN, Single-RAN, FTTS, Virtualization, Cloud, …

& upfront cash needs& upfront cash needs

don’t over-focus on financial savings!don’t over-focus on financial savings!

First things firstFirst things first


Key elements for successful network sharing

CEOs agree with & endorse Network Sharing.

Sharing Partners have similar perceived benefits (win-win feel).

Focus on creating a better network for less.

Both parties share a similar end-goal and similar strategic outlook.


Last but not least.

Do consider that break-up can happen … and be prepared! (“legal stuff”)

Network sharing is a very long term engagement (“for Life”!)


The key value proposition of a mobile network is ....

Freedom

& Mobility