Let’s Talk About Network Sharing – Again

Infrastructure investments will surge

Network sharing is well known in the telco industry. The first deal dates back to 2001, yet it was almost a decade before this option became established as a strategy for coping with 4G network rollout costs. As more and more operators were confronted with the phenomenon labeled “decoupling” (I.e. costs growing faster than revenues) they began to seek network sharing deals in their efforts to sustain ROI and shareholder value. Today, a decade later, the industry faces a 5G rollout and a massive surge in investments for spectrum, site infrastructure, new active equipment, and fiber backhauling. However, investments in networks still correlate poorly with revenue growth. Industry experts have estimated that between 2010 and 2018 industry revenues declined by $27 billion while telcos invested $250 billion in networks. Between 2019 and 2025, another $1.4 trillion will be spent by the industry, 70 percent of the total for the deployment of 5G (Source: Telekoms). Strict regulation prohibiting consolidation resulted in inefficient spending for overlapping infrastructures of comparable quality. In Europe, 5G licenses were awarded to lateral entrants, making ROI from a network infrastructure even more uncertain.

Network sharing improves return on investments significantly

To deliver the euphoric promises of 5G operators are examining all their options for the improvement of cost efficiency. Herein lies the appeal of network sharing: it is cheaper and faster to build and operate a joint infrastructure instead of two or more overlapping networks that compete with one another. On the Capex side, savings of up to 35 percent (Detecon estimates on MOCN all-generation sharing) are possible, mainly because of lower spending on network equipment and site infrastructure. On the Opex side, savings from active sharing can be as high as 20 to 35 percent relating to site rent and power reduction as well as to savings in O&M and labor costs.

While most of the synergies stem from a joint greenfield rollout, network sharing can reduce legacy drag, too. Many telcos have managed to switch off one legacy network, either GSM or UMTS, and to refarm freed-up up LTE spectrum. Yet regulatory provisions still compel them to keep the remaining layer alive (there is no preferred approach globally), whether to support emergency services or old devices (feature phones and old M2M modems). Adding legacy to a sharing deal could speed up technology sunset and free up valuable spectrum, particularly in lower spectrum bands that are critical for service coverage.

Network sharing can even turn the emergence of new market players into a business opportunity. Building a competitive greenfield network alone from scratch, even if on a smaller scale (as with industrial networks), requires specific skills and capabilities and not only significant up-front investment. New players will have to look for sharing partners, particularly in the early stages of any rollout, and this is a chance for incumbent players.

Right-size model and commitment are key to a successful sharing partnership

Network sharing has several design dimensions with a variety of options. There is no one-size-fits-all model: each deal is unique in its strategic intent, scope, and operating model. Active sharing of a complete network generates higher synergies, but is difficult to negotiate, takes longer to implement, and requires more up-front investment in integration. Passive sharing, while easier to establish, may not result in the required cost savings for positive 5G economics, and most savings are generated through equipment sharing.

Engaging in a sharing partnership has a very long-term impact so the right operating model and governance structure are key to success. A poorly structured deal impairs synergies and creates friction costs. Agreeing on the right model is a delicate balancing act between strategic intent, financial benefits, and business risk considerations.

Negotiating a sharing deal is complex, and two out of three network sharing endeavors do not get past the MoU stage owing to these four factors:

1. Internal resistance, primarily arising from fears of losing a competitive advantage
2. Seemingly incompatible network strategy or operating models
3. Unwillingness to share network control with a business competitor
4. Inability to focus on a perceived win-win solution

Overcoming these challenges requires full endorsement from CEOs and their management teams, a focus on long-term goals, and a cooperative approach to finding a solution. Involvement of a third party, especially at early stage of negotiation, can help to balance out interests and in designing the right model while securing confi dentiality.

As interest in 5G network sharing takes off; fewer partnership opportunities will remain

Experience shows that major network sharing agreements are concluded whenever new technology is introduced, and so we expect to see a third wave of sharing deals. New partnerships are being formed and previously concluded deals are being extended to include 5G RAN sharing. Cost efficiency will remain one of the key topics for the next decade (and beyond) as network investment requirements continue to rise.

While we do not preclude the emergence of multi-party sharing models, we strongly believe that bilateral partnerships will continue to represent the lion’s share of these deals. In this respect, the window of opportunity is closing; as more partnership agreements are signed, fewer options will remain for stand-alone telcos to secure cost benefi ts. As a massive 5G rollout will commence within the next two to three years, business leaders cannot dismiss network sharing as a strategic move anymore.