Given the renewed discussion of Network Sharing pros and cons I thought it made sense to wrap up several of my older presentations and update some of the information with latest knowledge.
...
Given the renewed discussion of Network Sharing pros and cons I thought it made sense to wrap up several of my older presentations and update some of the information with latest knowledge.
The myth of network sharing is clear -> huge savings and benefits often blinding the decision makers for the other side of the coin.
I hope this presentation provided a fair picture of both sides of the Network Sharing Coin!
The presentation provides more than 10 years of my work and experience since the early days of 3G Network Sharing discussions in 2000 - 2001.
Fundamentals of Mobile Network SharingPresentation Transcript
Network Sharing: a path to an ultra-efficient network factory?(Revisited thoughts on the benefits of network sharing)Dr. Kim Kyllesbech Larsen,Technology, Deutsche Telekom AG.
Transform or PerishDr. Kim Kyllesbech Larsen, Technology Leadership Forum, June 14 th 2012, Bonn. 2
So why should you share your network? Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 3
Deutsche Telekom sharing examples (1 of 4). Going Dutch – converging to “The rule of Three”. 2001 - 2004: 3G sharing – Capex avoidance strategy. T-Mobile US – Cingular – The GSM Factory. Initial discussion with Orange NL started in mid-2001. 2001 – 2004: Regional GSM Sharing JV. JV operational from mid 2002 to 2004. - T-Mobile– Orange NL merger… 2008 – 2009. Site & ancillary sharing. Geographical GSM RAN sharing agreement. - 2008 Acquisition. Common plan & build organization. T-Mobile US (via JV) responsible for NYC Metro areas. - No common procurement. JV closed down in YE 2004. TMUK – H3G 3G RAN sharing – more for less. Population ca. 22+M Price of Orange NL was ca.venture design, plan & build-co MBNL Ltd. 2007: Joint €1.3B or ca. €600 per customer. #Base Stations ca. 2,300 (at time of breakup). - Staff resistance (them vs us) - Different strategic objectives. network by 2010 with One single Cingular (via JV) responsible for California/Nevada areas. - TMNL decides no need for ancillary sharing. nodes and Population ca. 40+M (TMUS T-Mobile– Orange UK Network JV. - Ca. 5,000 fewer radio adds 3,000 – 5,000 3G Node-Bs that would otherwise not have been had 1.7M subs @ breakup in CA/NV) TMUK - financially/economical feasible. More economical to share own infrastructure than common. 2009: EE Network (ad)Venture –time ofBIGGEST Network in UK! #Base Stations ca. 5,000 (at The breakup). - Ca.3,300 (ca. 50%) fewer site locations. Common 3G plan & build organization (MBNL Ltd). Oct 2007 T-Mobile acquire Orange; network consolidation started. Venture discontinued in 2004 with Cingular – AT&T Wireless merger. Securing future competitive growth. Positive TMUK T-Mobile’s radio network “run-rate” avoidance). with 30%-40% denser + add spectrum optionality. Nov 2008 all Orange customers were migrated to EBITDA net of £50m 14% network by (net) $2.3B for California/Nevada grid than standalone. (ca. single TMUS pays 2014ish leveraging on higher spectral efficiency by consolidating. – - Starting point a network of 14,000 sites,NYC Metroend-game is 18,500. TMUS forced to spin-off 10MHz in today the markets (very painful!). H3G benefits from faster and much more efficient deployment . On track to deliverPositive annual Capexof €1+B by£79m Total 9,000money). roaming agreement. synergies in excess benefit of 2013 by 2012 (18% “run-rate” avoidance). (in time & site locations will be terminated (33% reduction) Nationwide Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom – H3G capital benefits far in excess of £0.5B (estimated savingspectral efficiency by consolidation. Leveraging higher & avoidance). 13 Substantial site lease cost savings andLargeprevention expected. synergies in both Network & IT. cash and readily achievable Kim Kyllesbech Larsen, Technology - T-Mobile. 15 – From 2011 and onwards. Significant synergies with NPV in excess of £3.5 bn. - Opex run-rate synergies ca. 35% (on relevant cost!) Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 14 - Capex “run-rate” synergies up-to 25%. Integration & termination cost of up-to £1.2 bn. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 16 EE has the BIGGEST mobile network(s) in UK which will remain so even after consolidation and integration has been finalized. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 17 Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 4
Deutsche Telekom sharing examples (2 of 4). Going Dutch – converging to “The rule of Three”. 2001 - 2004: 3G sharing – Capex avoidance strategy. 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. T-Mobile– Orange NL merger… 2008 – 2009. Oct 2007 T-Mobile acquire Orange; network consolidation started. 2008 Acquisition. Nov 2008 all Orange customers were migrated to T-Mobile’s radio network Price of Orange NL was ca. €1.3B or ca. €600 per customer. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 13 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). Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 14 Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 5
Deutsche Telekom sharing examples (3 of 4). T-Mobile US – Cingular – The GSM Factory. 2001 – 2004: Regional GSM Sharing JV. 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. Kim Kyllesbech Larsen, Technology - T-Mobile. 15 Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 6
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. T-Mobile– Orange UK Network JV. – From 2011 and onwards. 2009: EE Network (ad)Venture – The BIGGEST Network in UK! 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. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 16 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. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 17 Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 7
Vodafone sharing examples. Vodafone – Orange sharing … 2007. Vodafone – Telefonica sharing … 2008. Network sharing agreement in Spain and Romania. Network sharing agreements for Germany, Ireland and the UK with detailed discussions ongoing in the Czech Republic. Rural Area / Geographical sharing. Passive RAN network site sharing. National roaming like sharing concept with joint field services. Traffic managed independently of each other. Rural areas with population of less than 25,000 pops. Customers expected to benefit from improved coverage. Ca. 1,500 Node-Bs where shared by YE2007 with max 5,000 by YE2009. Benefits in the order of ”hundreds of million” £ for both over next 10 years. Venture frozen in 2009 as VF announced sharing deal with Telefonica. Today (May 2012) they share 4,000 site locations. Vodafone – Telefonica sharing … 2012. Getting a lot more for less …. Capex & Opex avoidance. (i.e., VF-Europe Opex in 2008 was £16.4 bn and TF-Europe Passive sharing including backhaul. 2008 Opex was in the order of £13 bn). (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. 18 Kim Kyllesbech Larsen, Technology - T-Mobile. 19 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. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 20 Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 8
The Good and The Ugly.Recipe for successful merger (or network sharing) and is matching technologylandscape and strategic outlook. Matching spectrum position and network grid aremuch more valuable (short-term) for synergies than complementary spectrum. AT&T – Cingular merger Sprint - Nextel Dominated by NextelMatching technology landscape and strategic outlook. Mismatch in technology landscape & strategic outlook.Good complementary spectrum (high grid match). Complementary spectrum but relative low grid match.Fairly symmetric & matching business structures and Very different business structures and models.models. Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 9
Expectation management – the full sharing potential. Expect up-to 35% saving on Tech Opex Total Opex 100% Up-to 5% on Total Corporate Opex Cluster Opex 40% Termination cost 1.5 – 3+ × of Opex savings Technology Opex Integration Capex synergetic with BaU Capex NT 14% RAN 7% Instant Cell split potential Enhanced Capacity RAN saving Spectral efficiency gains (>10%+)Illustration Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 10
Stages of sharing benefits.The best sharing strategy depends on the business cycle andtechnology age. < 5 years 5+ years > 5+ years LTE GSM – UMTS UMTS UMTS - GSM (LTE piggybacking) Rollout Phase Steady State Modernization UK: 3G T-Mobile – 3 UK UK. T-Mobile UK – Orange JV (EE Ltd). Poland: PTC – Orange incl. LTE Passive sharing: Site Lease & Civil Works, Illustration Mast/Tower sharing, Ancillary & Rack sharing, and Backhaul Sharing. Active sharing: e.g., Frequencies, TRXs, PAs, Baseband, CPU, ports, …. High Capex prevention. Little Capex benefits. High Capex prevention. Opex prevention. Opex savings. Opex savings. Cash optimized startup. Significant write-off. Minor write-off. Best network. High re-structuring cost. Re-structuring cost. Extended coverage. Instant cell split. Better network. Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 11
Economics of RAN sharing benefits.Sharing stages Capex Synergy OPEX Synergy Restructure Cost Write-off Passive sharing • Site build Opex prevention Rollout Phase • Mast Restructuring Relative low • Site lease • Rack / Ancillary cost can be low if exposure if little Bulk (>80%) of sites • Non-telco services Active sharing little legacy legacy and nodes to be • Telco services • MW/Fiber infrastructure is infrastructure is • Energy deployed. • Electronics present. present. • Resources • Spectrum • Resources Opex saving if Termination As most of the Passive sharing absolute number •Site lease. network has Steady State of site locations •Site restoration. been deployed at 80% of coverage and are reduced. •Service this stage the sites deployed. Mainly Low Capex level Primarily Opex Contracts. write-off Active sharing prevention in •Personnel cost exposure can be capacity additions and Other significant even if case of site coverage maintenance. number •JV overhead equipment can expansion. •Legal, etc.. be re-used. Opex saving if Restructure cost If decision for Passive sharing Modernization/ absolute number can be network sharing is taken in the of site locations significant. Obsolescence are reduced. Although contract renewal / Medium Capex level obsolescence Active element / node Active sharing Primarily Opex termination can phase write-off replacement, prevention in be less costly exposure can be technology migration. case of site due to longer relative light both number operational for equipment Site consolidation. Substantial Capex period. expansion. and site-build. = Low = High Illustration Synergy potential Cost exposure = Low = High Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 12
The ugly tail … the low profitability areas.Should drive sharing in low-traffic areas Illustration Urban Sub-urban Rural-like areas Cumulated Revenue (Traffic) 0% Low profitability sites 20% 50% revenue ≈ 10% sites 50% sites takes 40% less than 10% revenue 60% Top 30% sites ≈ 80% revenue. 80% 100% 0% 50% 100% Sites Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 13
Network Sharing can provide better economics andmarket timing … Frequency Site Radio Backhaul Backbone Core BSS (MHz) (acq. + build) (electronics) (transport) (transport) (switch & control) (bill & care) plmn 1 plmn 2 MNO 1 Core BSS plmn 1 + plmn 2 (optional) BTS & NODE-B MNO 2 eNodeB Core BSSCapex Efficiency Partly 40%-60% < 35% up-to 50% up-to 50% Less likelyprevention enabler possibleOpex Efficiency scale scale Partly < 35% ca. 35% Less likelyprevention enabler discount discount possibleRegulatory HIGH LOW LOWER LOWER LOWER HIGH HIGHcomplexity Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 14
Anatomy of network sharing.RAN sharing guaranties competitive differentiation, operatorindependency 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. Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 15
Network sharing.A mean to close the mobile broadband coverage gap (in CEE). Network Sharing Strategies Safe for Service by Sharing.Rural areas1 Operator A SHARED Operator B Substantial improved coverage, BILL PRICE BRAND SALES BILL PRICE BRAND SALES with a capacity boost and SERVICES SERVICES CORE CORE higher quality of services to the Consumer at a Quality Level JV2 Co 2G, 3G & LTE RAN incl. BACKHAUL SHARE RAN GSM UMTS LTE NOT Idealized Illustration Economical viable in Standalone.Urban areas1 BILL PRICE BRAND SALES BILL PRICE BRAND SALES SERVICES SERVICES Benefits. CORE CORE • Opex avoidance & savings. • Substantial Capex avoidance. JV2 Co 2G, 3G & LTE RAN incl. BACKHAUL SHARE • Shared Modernization. RAN GSM 900 & 1800 UMTS 900 & 2100 LTE SHARING 800, 2100 & 2600 MHz GSM 900 & 1800 • Shared LTE deployment. • A Much better network. Note: frequency bands not to scale! 1 Note sharing spectrum between two (or more) MNOs might not be regulatory allowed, 2 RAN JV Co can (often will) have different role & responsibilities. Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 16
Network sharing flavors … Site sharing (*) RAN Sharing (*) National Roaming (*) Capacity limited Coverage limited Rural HSS HLR HSS HSS HLR HSS HSS HLR HSS Core Core Core Core Core Core BSC BSC BSC BSC BSC RNC RNC RNC RNC RNC Shared site and passives Shared Radio, aggregation Wholesale arrangement, Independent BTS, NB, eNB. & frequencies (optional). geographical partnership. Passive sharing. Active sharing (MOCN1) Geographic sharing. shared transport (possible). Shared transport. One frequency sufficient. Independent frequencies. Frequencies sharing. Wholesale/cost-sharing., 1 Multi-Operator Core Network supporting RAN Sharing, (*) For LTE there is no BSC/RNC, core networks connected directly to the eNode-B. Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 17
Common Frequency Sharing…Solution for low-demand, rural areas and symmetric demand scenarios. Frequency pooling (*) 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). HLR HLR 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. Core Core ... Multiple core networks connected to a common radio access network (RAN) sharing a single frequency or a pool of frequencies. Shared IP backhaul Service requirements & capabilities not limited by the sharing requirements (i.e., resides in core network or service creation LTE platforms above the core network). eNode-B Requires user equipment support (i.e., R8 or later). Non-supporting user equipment will ignore the broadcast system Shared Freq., Radio & aggregation. information related to sharing functionality. Fairly complex coordination issues on resource allocation among 1 operator share its sharing parties, making this concept more interesting for low-traffic spectrum with others. rural areas (where demand is no issue) or highly asymmetric Multiple operators pool their traffic situations. spectrum assets together 1 MORAN = Multi-Operator Radio Access Network sharing of all active electronics with exception of and share total spectrum. 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. Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 18
Network components mapped to network layers. The deeper into the network infrastructure is shared the more the sharingconcept will appear as a merger or NetCo concept. Network Merger – Netco concept Network Sharing Radio Access CS & PS Signaling VAS IT & CS Network Network Network Network Network Spectrum / Classical MSC/VLR Classical HLR SMSC Billing system Frequencies R4 MSC Server & NG HLR MMSC Rating GSM BTS Gateway IN platform VMS Mediation GSM BSC Multiplexing Interconnect WAP CRM GSM TRX GGSN & SGSN NMS & operations Portals SAP/Finance 3G Node-B (packet core). Etc. 3rd party content systems. 3G RNC Evolved Packet Core. NMS & operations Business Intelligence. 3G Carrier & Channel IP networks (routers, Etc… Call center systems elements FW, etc..) (call routing, ..) e-Node-B (LTE RAN) Backbone transport OSS Backhaul (MW & LL) Interconnect IT Operations. Routers, switches and NMS & operations. Etc. multiplexing Etc. SW Licenses & features. NMS & operations. Etc. Note: above categorization is guiding but not fully un-ambiguous. Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 19
Why one should NOT commence Network Sharing.2 out of 3 NS deals considered are put on ice again! Complex Governance Technology mismatch Divest / Spin-off / merger very complex Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 20
Other business models …LTE as a Service. Emerging business models – LTE network factory Cash optimized startup via virtualization & OTT based services. Option: Small cell centric startup and Capacity as a Service. Provides. Enablers. Attractive (startup) cost economics. Profitability & cash crunch. Relative low Capex – cash optimized. Incumbent spectrum crunch. Increased spectral efficiency & utilization. MVNO / tier-2&3 MNO appetite. Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 21
Other business models … ultra-efficient transformation. Emerging business models – piggybacking on Virtualization & Cloud 3rd party, media companies, MNO/MVNO CDN & SDNs. 3rd parties 3rd parties (supplier) delivers BSS / delivers core OSS cloud network services to functionality SmartCo (off- (i.e., HSS, the-shelf) PCRF, etc..) Provides. Enablers. Data-only QoS transparent network. Regulatory support. Network services to MNO & MVNO. Spare Spectrum (i.e., typical Startup). Dedicated OTT network services. MNO & MVNO appetite. Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 22
Technology cost and synergy potential. Synergy potential Share of Managed services Network sharing Mobile ONLY Technology Opex €€ (€) €€€ (€) NT FTE Ca. 10% Typical 20% Min. 20% - 35% HC reduction Typically Capex >35% but depends on NT Services Ca. 15% commitment network reduction. Good savings potential, though risk >35% but depends on Rental & Leasing Ca. 25% - 30% for future sharing network reduction. optionality Ca. 5% - 10% Opex – Capex More Opex – Capex Transmission (can be a lot higher if majority leased transport) trade-off trade-off 10% - 20% Minor opportunities IT FTE 5% HC reduction <10% due to scale. Opex – Capex Minor opportunities IT Services 25% trade-offs <10% due to scale. Other 10% - 15% Minimum 10% pa At least 35% Illustration Note: Above numbers serve as illustrations only. Different operations may have different Technology Opex distributions.. Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 23
Key messages.What we need to be passionate about!First things first Utilize technology to achieve the best operational performance RRH, SDR RAN, Single-RAN, FTTS, Virtualization, Cloud, …don’t over-focus on financial savings! Network sharing provides cost reduction & increased quality. & increased complexity & upfront cash needs& don’t forget! Sharing models for mobile applies to fixed broadband as well. Maybe Even more so! Dr. Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 24
The key value proposition of a mobile network is .... Freedom & Mobility
Paul Hemming
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