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Analyzing Business Models For Network Sharing Success

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Presentation for "Managed Sevrices for Growth Markets" conference, March 17 & 18th of March 2009, Dubai.

Presentation for "Managed Sevrices for Growth Markets" conference, March 17 & 18th of March 2009, Dubai.

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  • 1. Analyzing Business Models for Network Sharing Success Managed Services for Growth Markets, Dubai, March 18th, 2009 Kim Kyllesbech Larsen Network Economics, T-Mobile International
  • 2. Why share your network? OPEX Saving (ca. 30% pa ) Capex prevention (>30%) Personnel efficiency Network efficiency Environmental Improvements Customer benefits OPEX prevention Operational efficiency Less spectrum demand Extended coverage “ cheap” M&A alternative T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Rollout speed
  • 3. A sharing anecdote.
    • Initial discussion with Orange NL started in mid ‘01.
    • JV operational from mid ‘02 to ‘04.
    • Common 3G rollout organization (Opex and Capex).
    • Common pool of GSM locations for co-locating 3G Equipment (Opex).
    • Common Site Acquisition & Site Build (Capex/Opex).
    • Shared ancillary & transmission (Capex).
    • JV closed down in YE ‘04.
    • Key expertise remained in the respective organizations (staff resistance).
    • Differences in rollout strategies (divergence from original expressed strategies).
    • TMNL’s policy not to use battery backup for UMTS nodes made ancillary sharing redundant.
    • Detailed analysis showed utilizing own existing GSM infrastructure (standalone) for 3G co-location provided lower cost and invest than sharing with another operator.
    • Oct ‘07 T-Mobile acquire Orange; network consolidation started.
    • Nov’08 all Orange customers were migrated to T-Mobile’s radio network
    3G-sharing in The Netherlands – T-Mobile – Orange joint venture. The Financials for network sharing was reasonable, however the case for closing down was better. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner.
  • 4. Stages of sharing benefits? Rollout Phase Steady State Renewal / Obsolescence
    • Capex savings
    • Opex prevention
    • Cash optimized startup
    • Best network
    • Little Capex benefits
    • Opex savings
    • Significant write-off
    • Re-structuring cost
    • Capex savings
    • Opex savings
    • Opex prevention
    • Minor write-off
    • Re-structuring cost
    UMTS LTE T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. GSM/UMTS WiMax < 5 years 4 – 8 years > 7 years
  • 5. The ugly tail. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Half the mobile network captures less than 10% of the revenue – Top 10% of the sites typically captures 50% (or more) of the revenue. 50% revenue ≈ 10% sites Top 30% sites ≈ 80% revenue 50% sites takes less than 10% revenue 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Sites 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cumulated Revenue Low profitability sites
  • 6. Network sharing – opportunity.
    • Where are we today?
    • Operators have built national radio infrastructures (in parallel).
    • Multiple (and possible) redundant cost …
    • Why?
    • Competition – coverage was a key market differentiator.
    • Regulatory – the licence required it.
    • Now!
    • Coverage – less of a differentiator.
    • Price, Services & Brand – the real differentiators.
    • Cost is a key driver!
    • Capex has become a scarce resource (for start-ups at least)
    T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner.
  • 7. Network sharing – the pressure.
    • Cost?
    • 50% (or more) of the Operators Network Opex is in RAN infrastructure.
    • Sharing reduces Opex pressure (saving & prevention).
    • Sharing reduces Capex pressure.
      • Upgrade costs – 2G refresh, mast upgrades.
      • Replacement costs – LTE/WiMax.
    • Network sharing is an opportunity to improve Profitability
    • But!
    • Technical problems may raise marketing, service and billing issues
    • Regulatory requirements - separate operating frequencies
    • Restructuring & integration cost can be substantial locking partners together for a long period of time.
    • Network sharing is also costly and complex to implement
    T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner.
  • 8. Network sharing example– cost reduction. 2 Operators with each 10,000 site locations intending to share 80% of existing pool and decommission 8,000 site locations. “ Easily” between 30% and 40% (relevant) Opex saving by RAN sharing T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. IDEALIZED EXAMPLE A is leased line based B is Micro Wave based 120 30 90 …… . 120 Yr1 Yr2 Yr3 Yr10 Opex Synergy per Operator (In m€)
  • 9. Network sharing example– uncertainties. …Whilst the saving potential is substantial keep in mind: T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. 20% Personnel Costs 60% Site Rental 13% Services 7% Other Costs
    • Landlord accepts a cut in lease income, i.e., two operators under same lease.
    • Lease cost asymmetry, e.g., 1 party has GSM & UMTS, the other only UMTS.
    • Labor laws.
    • Staff resistance.
    • Loss of key resources.
    • JV overhead.
    • Termination of existing contracts.
    • Supplier mismatch.
    • Internal contract synergies being violated.
    • Legal aspects of contract sharing.
    • Complexity.
  • 10. Network sharing example– termination cost. Decommission 8,000 site locations and sharing 10,000 sites gives a steady-state Opex saving of €120M per operator - But there is no such thing as a free meal: 60 Remove & Restore Lease termination 70 Personnel cost 25 Other cost 15 Asset Write-off >100 >270 one off 120 (In m€) In cost-reduction scenarios count on at least twice the annual Opex savings in restructuring cost. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. annual saving
  • 11. Network sharing example– integration cost. Depending on the extend of network sharing model (incl. regulatory possibilities), substantial capital investment might be needed to enable the integration and sharing of two networks. 60 - 100+ Capacity extension Civil works 60 – 120 SW feature 30 – 60+ IT invest 30+ (*) Other invest +10% >300 In Capex (In m€) T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. (*) depends on number of customers and business model
  • 12. … .and the real world is not symmetric. Operator A Operator B T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. 40% market share 20% market share Cover 98% of country Cover less than 50% of country Incumbent status Greenfield / new-entrant status Leased-line based backhaul MW-based backhaul Relative old equipment New equipment Multiple suppliers No supplier match Less efficient More efficient GSM & UMTS UMTS only 15,000 locations 5,000 locations
  • 13. Network sharing – summary. Network Sharing can significantly reduce Opex costs and capital requirements. Network Sharing can enable a far better network for same or better financials However, high restructuring costs and write-offs may not be (financially) acceptable Cash requirement of mobile broadband deployment (HSPA+, WiMax, LTE,..) may “force” network sharing. Network sharing is a long-term engagement in order for it to make financially & operationally sense. T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. or even possible. (i.e., TMUK – H3G formula).
  • 14. Why not to share your network? Strategic lock-in Deal complexity Asymmetric benefits High restructuring cost Coordination overhead Competitive disadvantages Integration complexity Growth limitations Asset write-off Regulatory scrutiny Loss of independence T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. Staff resistance Dis-entanglement very complex
  • 15. Thank you for your attention. Contact details : [email_address] M +31 6 2409 5202 L http://www.linkedin.com/in/kimklarsen
  • 16. More than 50% of all Network Related TCO comes from site-related operational and capital expenses. Backup - total cost of ownership & synergies. Site Rental Energy Operate & Maintain Leased Transmission Resources Site-related Opex Radio Node Ancillary Transmission Build / Civil Works Resources Site-related Capex Opex + Annualized Capex = TCO Synergy Potential Antenna T-Mobile International AG & Co. KG Confidential and Proprietary All rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner. - = Low = High

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