Mobile network sharing - Swedish experiences

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Mobile network sharing - Swedish experiences

  1. 1. Mobile network sharing - Swedish experiences Bengt G Mölleryd 20 May 2010 Email: bengt.molleryd@pts.se
  2. 2. Network sharing – a no-brainer? <ul><li>Reduce Capex with 20-50% </li></ul><ul><li>Cut Opex significantly </li></ul><ul><li>Deploy networks faster with fewer towers </li></ul><ul><li>Positive on the environment </li></ul><ul><li>… but there is also a cost associated with network sharing </li></ul>
  3. 3. Positive impact of network sharing <ul><li>Extensive deployment of 3G </li></ul><ul><li>3G population coverage 99.59% </li></ul><ul><li>Geographical coverage ~50% </li></ul><ul><li>3G operators have more than fulfilled license requirements </li></ul><ul><li>Competition Authority forced operators initially to make some alterations </li></ul><ul><li>PTS support network sharing </li></ul>~50% ~40%
  4. 4. Hot topic – part of the new market <ul><li>The aim with the presentation is to: </li></ul><ul><li>Give a view on ten years with network sharing in Sweden </li></ul><ul><li>Convey regulators view </li></ul><ul><li>Illustrate the costly deployment in rural Sweden </li></ul><ul><li>Show the limited impact on competition </li></ul><ul><li>Give a view on the future network sharing </li></ul>
  5. 5. My background <ul><li>Ph.D. Oct 1999 ”Entrepreneurship in Technological Systems - The Development of Mobile Telephony in Sweden” </li></ul><ul><li>Analyst with focus on telecom </li></ul><ul><ul><li>AB Stelacon 1999 – 2001 </li></ul></ul><ul><ul><li>Evli Bank 2001-05 </li></ul></ul><ul><ul><li>Nordea 2005-06 </li></ul></ul><ul><ul><li>Standard & Poor’s 2006-08 </li></ul></ul><ul><ul><li>Handelsbanken 2007-09 </li></ul></ul><ul><ul><li>PTS 2009 – </li></ul></ul><ul><li>Guest researcher Royal Institute of Technology, Stockholm (wireless@kth) 2009- </li></ul>
  6. 6. Telia dominated the market in 2000 <ul><li>6.3m GSM subs </li></ul><ul><li>70 subs per 100 inhabitants </li></ul><ul><li>Population coverage </li></ul><ul><li>Telia 99% </li></ul><ul><li>Europolitan (Vodafone/Telenor) and Tele2 96% </li></ul><ul><li>Geographical coverage </li></ul><ul><li>Telia 80-90% </li></ul><ul><li>Europolitan and Tele2 40-60% </li></ul>
  7. 7. Four 3G licenses (Dec 2000) X License requirements: cover 8.86m people with up to 70% shared infrastructure and 30% by own infrastructure
  8. 8. Two network companies formed Sunab was able to build the entire network as Telia did not have a 3G license
  9. 9. Regulators - positive view <ul><li>PTS </li></ul><ul><li>Part of the license requirement </li></ul><ul><li>Operators able to fulfill 70% of coverage obligation by network sharing </li></ul><ul><li>30% by own infrastructure </li></ul><ul><li>Positive towards network sharing </li></ul><ul><li>Competition Authority </li></ul><ul><li>Sunab more extensive, but Telia did no have a 3G license </li></ul><ul><li>3GIS – new players low market shares </li></ul><ul><li>Yes – go ahead with network sharing </li></ul>
  10. 10. Different conditions: 43 vs 2 in/km 2 <ul><li>Denmark </li></ul><ul><li>Area: 43 094 km 2 </li></ul><ul><li>Population: 5.5 m </li></ul><ul><li>128 inhabitants/km 2 </li></ul><ul><li>Urban </li></ul><ul><li>80% of the population lives on 40% of the area </li></ul><ul><li>255 inhabitants/km 2 </li></ul><ul><li>Rural </li></ul><ul><li>26 000 km 2 </li></ul><ul><li>43 inhabitants/km 2 </li></ul><ul><li>Sweden </li></ul><ul><li>450 295 km 2 </li></ul><ul><li>9.1 m </li></ul><ul><li>20 inhabitants /km 2 </li></ul><ul><li>Urban </li></ul><ul><li>90% of the population lives on 10% the area </li></ul><ul><li>182 inhabitants/km 2 </li></ul><ul><li>Rural </li></ul><ul><li>405 266 km 2 </li></ul><ul><li>2.2 inhabitants/km 2 </li></ul>Case DK - SE
  11. 11. Deploying over 10K sites in SE Case DK - SE Coverage in unpopulated areas
  12. 12. Capex per subscriber - too high Case DK - SE Payback 200 months
  13. 13. Almost 50% of capex 2003-04 Fulfilled 3G license requirement 2007 Cover 8.86 m people
  14. 14. 12% in relation to total market Indicate that 88% of value made besides network sharing
  15. 15. ..limited impact on market shares
  16. 16. … but Telia’s revenue share dropped Although Telia has lost market shares it has a firm grip of the market
  17. 17. Consumers enjoying low prices OECD mobile medium-usage basket, August 2008, tax included
  18. 18. … but what about 4G network sharing <ul><li>Heavy volume users </li></ul><ul><li>IP-based infrastructure makes it more dynamic </li></ul><ul><li>Voice over 4G from 2015? </li></ul><ul><li>Giving GSM a new push </li></ul><ul><li>Peak rates play a vital role in strategic marketing </li></ul><ul><li>Differentiation of mobile data services </li></ul><ul><li>Operators need to increase capacity and lower production cost </li></ul><ul><li>Making spectrum to a key asset </li></ul>
  19. 19. Three infrastructure companies – different partners
  20. 20. Net4Mobility – low share of value creation <ul><li>Net4Mobility’s cost base in relation to Tele2’s and Telenor’s revenues </li></ul><ul><li>Assuming annual costs of SEK 952m for Net4Mobility </li></ul><ul><li>Capex SEK 3.3 bn </li></ul><ul><li>Opex 10% of accumulated capex, WACC 8.2% </li></ul><ul><li>Total mobile market SEK 23.8bn (end customer revenues) </li></ul><ul><li>Market shares: Tele2 and Telenor 22% respectively </li></ul>Represents 4% of the total market value - implies limited impact on competition 8%
  21. 21. … but if its affects competition negatively <ul><li>Competition Authority is scrutinizing the agreement </li></ul><ul><li>Determine the level of network sharing (broad range: passive, active, full) </li></ul><ul><li>Sunab as a role model </li></ul><ul><li>Enforce Net4Mobility to safe guard continued end-customer competition </li></ul><ul><li>… but if this is not sufficient </li></ul>
  22. 22. … could PTS take measures <ul><li>… and examine the market for mobile origination </li></ul><ul><li>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) </li></ul><ul><li>Another possible avenue could be to examine ways to support the unexploited MVNO market in Sweden </li></ul><ul><li>… or use other possibilities </li></ul>
  23. 23. Pro and cons with network sharing <ul><li>+ </li></ul><ul><li>Lower Capex </li></ul><ul><li>Lower Opex </li></ul><ul><li>Benefitting from an enhanced network </li></ul><ul><li>Maintained control over mobility </li></ul><ul><li>Maintained position on the market </li></ul><ul><li>- </li></ul><ul><li>Cumbersome to reach consensus on all aspects </li></ul><ul><li>Loose independence over network strategy </li></ul><ul><li>Hidden cost </li></ul><ul><li>Impossible to foresee everything that has to be part of the agreement </li></ul>
  24. 24. Concluding with a positive view <ul><li>Network sharing is here to stay – part of the new market </li></ul><ul><li>Competition has not been affected negatively </li></ul><ul><li>Provided large coverage and price worthy services </li></ul><ul><li>What about the Future: loaded sites gives no incentive to pursue network sharing… </li></ul><ul><li>… but increasing flexibility of 4G infrastructure support network sharing </li></ul><ul><li>It is primarily a financial issue and operators’ drive to generate value safeguard continued end-customer competition </li></ul>
  25. 25. Q&A Vornear passer det bedst med et foredrag fra det svendske PTS? - Hvergang!!
  26. 26. Appendix
  27. 27. GSM has been revitalized ~90% ~65% ~70% Geographical coverage
  28. 28. GSM still dominates … Implies that network sharing is only applicable to 37% of voice minutes, but mobile data…
  29. 29. Sweden having low prices Source: Mobile phone service prices 2009 – International comparision, Ficora May 2009
  30. 30. Business case 3G <ul><li>3G penetration 90% </li></ul><ul><li>Market share 25% </li></ul><ul><li>ARPU EUR 25 </li></ul><ul><li>Capex EUR 100 000 per site (70K site + 30K radio) </li></ul><ul><li>WACC 12.5%, annualized site 20 years, radio 5 years </li></ul><ul><li>Opex 20% of accumulated capex </li></ul><ul><li>Direct cost EUR 80 per year and sub </li></ul><ul><li>Geographical coverage SE 45%, DK 80% </li></ul><ul><li>Cell range 2.5 km </li></ul>Case DK - SE
  31. 31. Profit margin after annualized capex - Massive losses in Rural SE Case DK - SE Decisive argument to pursue network sharing
  32. 32. Mobile capex - EUR 4.5 bn Telenor acquired Europolitan/Vodafone Sweden in 2005 for EUR 1bn
  33. 33. Network companies share of value 4%-18% Revenues/cost for network companies in relation to revenues made by the operators
  34. 34. Mobile broadband: revenue gap? No problem with capacity until utilization rates reach peak rates Network upgrade drives capex that reduces cash flow Business Innovation Strategies to Reduce the Revenue Gap for Wireless Broadband Services by Markendahl, Mölleryd, Mäkitalo, Werding download: http:// papers.ssrn.com /sol3/papers.cfm?abstract_id=1559116

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