mobile network sharing - swedish experiences
DESCRIPTION
TRANSCRIPT
04/10/23 2
Network sharing – a no-brainer?
• Reduce Capex with 20-50%
• Cut Opex significantly
• Deploy networks faster with fewer towers
• Positive on the environment
• …but there is also a cost associated with network sharing
04/10/23 3
Positive impact of network sharing
• Extensive deployment of 3G
• 3G population coverage 99.59%
• Geographical coverage ~50%
• 3G operators have more than
fulfilled license requirements
• Competition Authority forced
operators initially to make some
alterations
• PTS support network sharing
~50%
~40%
04/10/23 4
Hot topic – part of the new market
The aim with the presentation is to:
• Give a view on ten years with network sharing in Sweden
• Convey regulators view
• Illustrate the costly deployment in rural Sweden
• Show the limited impact on competition
• Give a view on the future network sharing
04/10/23 5
My background
• Ph.D. Oct 1999 ”Entrepreneurship in Technological Systems - The Development of Mobile Telephony in Sweden”
• Analyst with focus on telecom
• AB Stelacon 1999 – 2001• Evli Bank 2001-05• Nordea 2005-06• Standard & Poor’s 2006-08• Handelsbanken 2007-09• PTS 2009 –
• Guest researcher Royal Institute of Technology, Stockholm (wireless@kth) 2009-
S TELA CONM A R K ET IN G R ES EA R CH & CON S ULT IN G
04/10/23 6
Telia51%
Tele233%
Europolitan/Telenor
16%
Telia dominated the market in 2000
• 6.3m GSM subs
• 70 subs per 100 inhabitants
Population coverage
• Telia 99%
• Europolitan (Vodafone/Telenor) and Tele2 96%
Geographical coverage
• Telia 80-90%
• Europolitan and Tele2 40-60%
04/10/23 7
Four 3G licenses (Dec 2000)
XLicense requirements: cover 8.86m people with up to 70% shared infrastructure and 30% by own infrastructure
04/10/23 8
Two network companies formed
Sunab was able to build the entire network as Telia did not have a 3G license
04/10/23 9
Regulators - positive view
PTS• Part of the license
requirement
• Operators able to fulfill 70% of coverage obligation by network sharing
• 30% by own infrastructure
• Positive towards network sharing
Competition Authority• Sunab more extensive, but
Telia did no have a 3G license
• 3GIS – new players low market shares
• Yes – go ahead with network sharing
04/10/23 10
Different conditions: 43 vs 2 in/km2
Denmark• Area: 43 094 km2
• Population: 5.5 m
• 128 inhabitants/km2
Urban
• 80% of the population lives on 40% of the area
• 255 inhabitants/km2
Rural
• 26 000 km2
• 43 inhabitants/km2
Sweden• 450 295 km2
• 9.1 m
• 20 inhabitants /km2
Urban
• 90% of the population lives on 10% the area
• 182 inhabitants/km2
Rural
• 405 266 km2
• 2.2 inhabitants/km2
Case DK - SE
04/10/23 11
Deploying over 10K sites in SE
Number of sites
0
2 000
4 000
6 000
8 000
10 000
12 000
Sverige Denmark
Urban Rural
Case DK - SE
Coverage in unpopulated areas
04/10/23 12
Capex per subscriber - too highCapex per sub
124 89
5 041
466526152
0
1 000
2 000
3 000
4 000
5 000
6 000
Sverige Denmark
Urban Rural Total
Case DK - SE
Payback 200 months
04/10/23 13
Almost 50% of capex 2003-04 Network sharing of toal capex
0%
10%
20%
30%
40%
50%
60%
2001 2002 2003 2004 2005 2006 2007 2008 2009
Sunab 3GIS Total netw orks sharing capex
Fulfilled 3G license requirement 2007Cover 8.86 m people
04/10/23 14
12% in relation to total marketNetwork share part of value (total end customer revenues)
0%
2%
4%
6%
8%
10%
12%
14%
2002 2003 2004 2005 2006 2007 2008 2009
Indicate that 88% of value made besides network sharing
04/10/23 15
..limited impact on market shares Market shares (subs)
0%
10%
20%
30%
40%
50%
60%
Telia Tele2 Europolian/Telenor 3
2000 2009
04/10/23 16
…but Telia’s revenue share dropped
Market shares (revenues)
0%
10%
20%
30%
40%
50%
60%
70%
Telia Tele2 Europolian 3
2000 2009
Although Telia has lost market shares it has a firm grip of the market
04/10/23 17
Consumers enjoying low prices
OECD mobile medium-usage basket, August 2008, tax included
04/10/23 18
…but what about 4G network sharing
• Heavy volume users • IP-based infrastructure makes it more
dynamic• Voice over 4G from 2015?• Giving GSM a new push• Peak rates play a vital role in strategic
marketing • Differentiation of mobile data services• Operators need to increase capacity and
lower production cost• Making spectrum to a key asset
04/10/23 19
Three infrastructure companies – different partners
04/10/23 20
Net4Mobility – low share of value creation
• Net4Mobility’s cost base in relation to Tele2’s and Telenor’s revenues
• Assuming annual costs of SEK 952m for Net4Mobility
• Capex SEK 3.3 bn • Opex 10% of accumulated
capex, WACC 8.2% • Total mobile market SEK
23.8bn (end customer revenues)
• Market shares: Tele2 and Telenor 22% respectively
Net4Mobility share of value creation
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Tele2 Telenor
Represents 4% of the total market value - implies limited impact on competition
8%
04/10/23 21
…but if its affects competition negatively
• Competition Authority is scrutinizing the agreement
• Determine the level of network sharing (broad range: passive, active, full)
• Sunab as a role model• Enforce Net4Mobility to safe guard continued
end-customer competition• …but if this is not sufficient
04/10/23 22
…could PTS take measures
• …and examine the market for mobile origination
• Revisit the market analysis that PTS carried out in 2005 and explore if any player has SMP status on the market for network capacity (Access and call origination on public mobile telephone networks)
• Another possible avenue could be to examine ways to support the unexploited MVNO market in Sweden
• …or use other possibilities
04/10/23 23
Pro and cons with network sharing
+• Lower Capex
• Lower Opex
• Benefitting from an enhanced network
• Maintained control over mobility
• Maintained position on the market
-• Cumbersome to reach
consensus on all aspects
• Loose independence over network strategy
• Hidden cost
• Impossible to foresee everything that has to be part of the agreement
04/10/23 24
Concluding with a positive view
• Network sharing is here to stay – part of the new market
• Competition has not been affected negatively
• Provided large coverage and price worthy services
• What about the Future: loaded sites gives no incentive to pursue network sharing…
• …but increasing flexibility of 4G infrastructure support network sharing
• It is primarily a financial issue and operators’ drive to generate value safeguard continued end-customer competition
04/10/23 25
Q&A
Vornear passer det bedst med et foredrag fra det svendske PTS?- Hvergang!!
04/10/23 26
Appendix
04/10/23 27
GSM has been revitalized
~90% ~65%~70%
Geographical coverage
04/10/23 28
GSM still dominates …
Traffic split GSM vs 3G
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2001 2002 2003 2004 2005 2006 2007 2008 2009
3G GSM
Implies that network sharing is only applicable to 37% of voice minutes, but mobile data…
04/10/23 29
Sweden having low prices
Source: Mobile phone service prices 2009 – International comparision, Ficora May 2009
04/10/23 30
Business case 3G
• 3G penetration 90%
• Market share 25%
• ARPU EUR 25
• Capex EUR 100 000 per site (70K site + 30K radio)
• WACC 12.5%, annualized site 20 years, radio 5 years
• Opex 20% of accumulated capex
• Direct cost EUR 80 per year and sub
• Geographical coverage SE 45%, DK 80%
• Cell range 2.5 km
Case DK - SE
04/10/23 31
Profit margin after annualized capex - Massive losses in Rural SE
Profit margin (after annualized capex)
58%
-567%
7%
62%14%
54%
-600%
-500%
-400%
-300%
-200%
-100%
0%
100%
Urban Rural Total
Sverige Denmark
Case DK - SE
Decisive argument to pursue network sharing
04/10/23 32
Mobile capex - EUR 4.5 bn
Mobile capex 2001-2009
0
200
400
600
800
1000
1200
1400
1600
TeliaSonera Telenor Tele2 3 Sunab 3GIS
EU
Rm
Share of mobile capex 2001-2009
TeliaSonera23%
Telenor7%
Tele29%
329%
Sunab13%
3GIS19%
Telenor acquired Europolitan/Vodafone Sweden in 2005 for EUR 1bn
04/10/23 33
Network companies share of value 4%-18%
Share of value (revenues)
0%
5%
10%
15%
20%
25%
30%
2004 2005 2006 2007 2008 2009
Tele2 share of Sunab TeliaSonera share of Sunab
Telenor share of 3GIS 3 share of 3GIS
Revenues/cost for network companies in relation to revenues made by the operators
04/10/23 34
Mobile broadband: revenue gap?
No problem with capacity until utilization rates reach peak ratesNetwork upgrade drives capex that reduces cash flow
Business Innovation Strategies to Reduce the Revenue Gap for Wireless Broadband Services by Markendahl, Mölleryd, Mäkitalo, Werdingdownload: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1559116