When Commissioner Ms Neelie Kroes was in charge of the digital agenda for Europe, she commented that the organisation of economy and of society would inﬂuence Europe’s success in the digital age and that the key to such success was the underlying infrastructure network. While today’s digital world continues to evolve and the pace at which we embrace the changes in how communication services are consumed remains rapid, the underlying fundamentals have not changed. The core asset is still the network; it is the competitive advantage. Infrastructure remains essential for delivery, and network differentiation can mean the difference between business success and failure.
Communication operators have explored ways to monetise infrastructure and assets for several decades, driven by the decline in legacy revenue streams. However it has only been in the last ten years that we have seen the emergence of deeper and more sophisticated service models, and a less protective and more open approach to the sharing of technologies. Indeed the importance of the capacity, coverage and functionality of the network has been reinforced with the arrival of 4G which has led to the growth in new data rich products and services. To support new digital services, mobile payments and internet of things, geographical expansion needs to happen quickly to meet consumer demand and secure first mover advantages. With 5G services on the horizon, network investment and innovation are at the heart of future communications strategy. An increasingly common approach to address these issues is sharing, whether this is the physical sharing of infrastructure, roaming agreements or the sharing of spectrum.
Whilst some shade of sharing exists in almost every country in the world, most regulators shy away from legally mandating it (there are exceptions, such as the UAE, Jordan, where sharing has been regulatory enforced). Instead most regulators actively promote it and rely that challenging economic climates will lead operators to independently conclude on the common sense of such an approach.
Advantages and challenges
The advantages of sharing arrangements are well understood – cost benefit, speed of deployment, coverage, and so on. However, interestingly, there remains a marked difference in sharing between operators in mature markets and those in emerging markets. Typically those in mature markets use sharing strategies to reduce operating costs and provide additional capacity in areas where there is limited space or where it is not cost efficient to build out two networks. Sometimes sharing can offer an additional source of revenue provided that core products and services continue to be differentiated. In newer markets – perhaps because voice revenue streams are still as important – the primary aim tends to be more about expanding coverage than reducing costs. Because coverage is often used as the service differentiator and as urban areas grow, these markets historically favour a more passive than active sharing approach.
Sharing has its challenges of course, as is the case with any arrangement between players operating in a regulated sector. Ultimately two or more competitors are becoming partners – in some cases the competitors have equal leverage, but more often than not there is a more dominant player and that dominant will want to retain as much control as possible. To succeed behavioural alignment is critical. The parties need to establish the limits of their roles and responsibilities with each other, as well as with those third party vendors, and service providers supporting and maintaining the infrastructure. To do this well, both sides need stakeholder buy-in; not just to the high level concept but also to the operational nuances. Practical matters also need to be determined at the outset – site requirements, loading calculations, design capacity, antenna sizes, traffic use imbalances and late entrant access – all need advance consideration. The reality is that there are two separate businesses involved, each of which will be working to different priorities at any one time, be these achievement of coverage licence obligations, fulfilment of contractual commitments in customer deals or internal strategic drivers.
Types of sharing
Infrastructure sharing has many shades, ranging from reciprocal fibre lease capacity (as recently demonstrated in Bangladesh by Banglalink and Summit) and national roaming, to passive site and mast sharing.What started as a passive trend has evolved to sharing higher up the asset value chain and sharing of backhaul, RAN (radio access network), core network and spectrum are growing. The deeper the sharing, the more involved the regulators. While collaboration is smiled upon, collusion is not, and there is a fine balance to be struck in the sharing arrangements to ensure that the players involved stay on the right side of that line.
Although national roaming does not technically involve investment sharing of physical infrastructure, operationally an operator’s customer does ‘share’ and is routed through another operator’s network. Increasingly, operators are including roaming arrangements as part of infrastructure sharing arrangements. Although not a new phenomenon in itself, as new technologies and new licence bands are opened up and as new entrants need to build out quickly to survive, national roaming collaborations are on the rise and can be strategically important for successful sharing.
The MVNO market and the mandating of more open capacity based MVNO access also has its role to play within infrastructure sharing and re-selling models. This is particularly the case where market consolidation – acquisition and sale – can take the number of mobile network operators down from four to three and there are perceived competition risks. This was demonstrated in Germany last year when Telefonica agreed to sell part of the combined network capacity to German MVNO Drillisch in order to get merger approval for its acquisition of KPN’s German mobile network, E-Plus. However, combining mandated MVNO access models with named third party beneficiaries needs careful handling by regulators. There is a risk that such an approach inadvertently adds to the problem it is seeking to solve. New entrant access should be allowed to be innovative in their approach, and allowing remedies where MVNOs can become mobile network operators in their own right a more effective competitive approach.
Spectrum sharing also has an increasingly important role to play, particularly because of the growth of data rich services. European operators have been slower to embrace the approach when compared to countries such as India where many of the big telcos, Reliance, Bharti, Aircel and Videocon have already embarked on spectrum sharing and trading deals. European regulators are keen to improve the use of spectrum. At both a European Commission and domestic country level regulators are focused on implementing more effective spectrum management strategies. In the UK, Ofcom has already provided for the majority of spectrum licence classes are tradeable; however like most regulators they remain nervous about interference issues and as such restrict the ability for the sharing of spectrum without regulatory approval or wider consultation.
From the other side mobile operators are happy to embrace spectrum sharing provided that they get to choose the terms on which that sharing happens and, crucially, at what price. For these players, sharing is acceptable only if it is within the boundaries of what they are capable of competing with.
Mandating some level of spectrum sharing without imposing restrictions on use would enable the growth of a more competitive environment. However such obligation must come with guidance on the underpinning principles that will ﬂow through into the commercial terms that exist between the sharing parties. Without such guidance there is a risk that a mobile operator’s wider concern to protect its ground will unduly prejudice a process that is intended to create more competition.
With so many different shades of sharing and so many different countries and operators involved, a common comprehensive set of rules for sharing could not work. Sharing will continue to work because operators can choose how to invest, how to innovate, how to collaborate.
Fifty shades of sharing (cincuenta sombras de compartición de redes), and more to come.Originally published in the International Bar Association Communications (Legal Practice Division) Newsletter (Volume 22), June 2016