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Network Sharing Fundamentals.
(Updated & revisited thoughts on the benefits of network sharing)
Dr. Kim Kyllesbech Larsen
.
Why sharing a part or all of the mobile network?
Between 40% to 50% of sites are low or no profitable (“the ugly tail”)
Frees up cash to be spend in areas that matters (“Save for Growth”).
Effective Opex & Capex measure increasing operational efficiencies.
Increased network quality for a lot less than standalone (“Best network”).
Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals 2
Network sharing boils down to 4 major considerations.
Who to share with? (your equal, your better or your worse or all)
What to share? (sites, passive, active, frequencies)
Where to share? (rural, sub-urban, urban, all, etc.)
How to share? (“the legal stuff”)
Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals 3
Mobile Emerging markets – growth slowing down.
Revenue 2009 – 2012 + 48% pa.
Revenue 2012 – 2017 9% pa.
Opex 2012 – 2017 + 12% pa.
& 3G has to get started
- Top-line pressure (voice & sms).
- Opex pressure.
MEA Example
Emerging Market Growth on expense of profitability
Long-term development troublesome.
134
%
88
% 111
%
76
%
68
%
112
%
55
%
60
%
60
%
10
%
20
%
25
%
Mob
%
3G
%
4Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Tellabs global study1 …The End-of-Profit.
The end to the mobile-only business model as we know it?
Mobile carrier study
“End-to-Profit” (Tellabs study).
Business
model
breakdown
Mounting cash
pressure
• Risk of End-of-Profit next 5 years?
• Un-managed mobile data demand.
•Short-term price-plans wo long-term view.
What can be learned?
Causes:
- Modernization pressure.
- Exponential data growth.
- Capacity Crunch.
- Need for more spectrum.
- LTE introduction.
- Revenue slow down.
- Decline of legacy business.
- Increased competition as market
saturate.
- Increased cost.
5Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Europe 2020 … A soft landing?
Europe Mobile Revenue
Europe Mobile Opex
Europe Mobile Ebitda
2008
2002
2020
37%
38%
Just prior to crisis
2005
35%
31%
38%
2010
-15%
+15%
CAGR 0.8%
CAGR 1.9%
Total Revenue
Technology Cost (ca. 15% – 20%)
Usage Cost−
Market Invest SAC & SRC
−
= EBITDA (WEU ca. 37% 1)
Personnel Cost
Other Cost
−
−
−
Network Depreciation−
Spectrum Amortization−
Capex (new rollout < +10+% of Revenue)−
1 BoA ML Global Wireless Matrix 1Q11, margin data for 4Q 2010.
Spectrum invest (0.8 – 0.05 € per MHz-Pop)−
Red color represent Technology driven cost
+ New Revenue?
Defend philosophy!
Stop / Slow Revenue Decline
New business!?
QoS, LTE, IoT, Media, FM
C, …
Efficiency game
Optimize: Defend / Slow
Ebitda Decline
Increased cash pressure
New technology /
Modernize
The Hunt for $30+Bn
1.9%
0.8%
CAGR 13%
Max 30+%
6Dr. Kim Kyllesbech Larsen , Network Sharing Fundamentals.
Mobile broadband journey … be prepared.
The lessons learned from mature markets.
Messaging revenue decline (particular for Smartphones & OTT)
Voice revenue decline (faster than data revenue uptake)
Cash and margin pressure from new technology introduction.
7Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Transform
or
Perish
8Dr. Kim Kyllesbech Larsen, , Network Sharing Fundamentals..
So why should you share your network?
9Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Going Dutch – converging to “The rule of Three”.
 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.
 Oct 2007 T-Mobile acquire Orange; network consolidation started.
 Nov 2008 all Orange customers were migrated to T-Mobile’s radio network
2001 - 2004: 3G sharing – Capex avoidance strategy.
13Kim KyllesbechLarsen, TechnologyEconomics– Deutsche Telecom
Kim KyllesbechLarsen, Technology- T-Mobile. 15
T-Mobile US – Cingular – The GSM Factory.
 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.
2001 – 2004: Regional GSM Sharing JV.
Deutsche Telekom sharing examples (1 of 4).
T-Mobile– Orange NL merger… 2008 – 2009.
 Price of Orange NL was ca. €1.3B or ca. €600 per customer.
 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).
14Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom
2008 Acquisition.
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.
– From 2011 and onwards.
16Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom
T-Mobile– Orange UK Network JV.
 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.
 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.
2009: EE Network (ad)Venture – The BIGGEST Network in UK!
17Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom
10Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Deutsche Telekom sharing examples (2 of 4).
Going Dutch – converging to “The rule of Three”.
 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.
 Oct 2007 T-Mobile acquire Orange; network consolidation started.
 Nov 2008 all Orange customers were migrated to T-Mobile’s radio network
2001 - 2004: 3G sharing – Capex avoidance strategy.
13Kim KyllesbechLarsen, TechnologyEconomics– Deutsche Telecom
T-Mobile– Orange NL merger… 2008 – 2009.
 Price of Orange NL was ca. €1.3B or ca. €600 per customer.
 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).
14Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom
2008 Acquisition.
11Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Kim KyllesbechLarsen, Technology- T-Mobile. 15
T-Mobile US – Cingular – The GSM Factory.
 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.
2001 – 2004: Regional GSM Sharing JV.
Deutsche Telekom sharing examples (3 of 4).
12Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
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.
– From 2011 and onwards.
16Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom
T-Mobile– Orange UK Network JV.
 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.
 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.
2009: EE Network (ad)Venture – The BIGGEST Network in UK!
17Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom
13Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Vodafone sharing examples.
Kim Kyllesbech Larsen, Technology - T-Mobile. 18
Vodafone – Orange sharing … 2007.
 Rural Area / Geographical sharing.
 National roaming like sharing concept with joint field services.
 Rural areas with population of less than 25,000 pops.
 Ca. 1,500 Node-Bs where shared by YE2007 with max 5,000 by YE2009.
 Venture frozen in 2009 as VF announced sharing deal with Telefonica.
Network sharing agreement in Spain and Romania.
(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. 19
Vodafone – Telefonica sharing … 2008.
 Passive RAN network site sharing.
 Traffic managed independently of each other.
 Customers expected to benefit from improved coverage.
 Benefits in the order of ”hundreds of million” £ for both over next 10 years.
 Today (May 2012) they share 4,000 site locations.
Network sharing agreements for Germany, Ireland and the UK
with detailed discussions ongoing in the Czech Republic.
(i.e., VF-Europe Opex in 2008 was £16.4 bn and TF-Europe 2008 Opex was in the order of £13 bn).
Vodafone – Telefonica sharing … 2012.
 Passive sharing including backhaul.
 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.
Getting a lot more for less …. Capex & Opex avoidance.
20Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom
14Dr. Kim Kyllesbech Larsen
The Good and The Ugly.
Recipe for successful merger (or network sharing) and is matching technology
landscape and strategic outlook. Matching spectrum position and network grid are
much more valuable (short-term) for synergies than complementary spectrum.
Sprint - NextelAT&T – Cingular merger
Matching technology landscape and strategic outlook.
Good complementary spectrum (high grid match).
Fairly symmetric & matching business structures and
models.
Mismatch in technology landscape & strategic outlook.
Complementary spectrum but relative low grid match.
Very different business structures and models.
Dominated by Nextel
15Dr. Kim Kyllesbech Larsen
Expectation management – the full sharing potential.
Total Opex
100%
Technology Opex
NT 14%
RAN
saving
RAN 7%
Cluster Opex
40%
Illustration
Expect up-to 35% saving on Tech Opex
Up-to 5% on Total Corporate Opex
Termination cost 1.5 – 3+ × of Opex savings
Integration Capex synergetic with BaU Capex
Instant Cell split potential Enhanced Capacity
Spectral efficiency gains (>10%+)
16Dr. Kim Kyllesbech Larsen
Rollout Phase
UK: 3G T-Mobile – 3 UK
Steady State
UK. T-Mobile UK – Orange JV (EE Ltd).
Stages of sharing benefits.
The best sharing strategy depends on the business cycle and
technology age.
 High Capex prevention.
 Opex prevention.
 Cash optimized startup.
 Best network.
 Little Capex benefits.
 Opex savings.
 Significant write-off.
 High re-structuring cost.
 Extended coverage.
 High Capex prevention.
 Opex savings.
 Minor write-off.
 Re-structuring cost.
 Instant cell split.
 Better network.
< 5 years 5+ years
UMTS - GSMLTE
> 5+ years
UMTS
Passive sharing: Site Lease & Civil Works,
Mast/Tower sharing, Ancillary & Rack sharing, and Backhaul Sharing.
Active sharing: e.g., Frequencies, TRXs, PAs, Baseband, CPU, ports, ….
Modernization
Poland: PTC – Orange incl. LTE
GSM – UMTS
(LTE piggybacking)
Illustration
17Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Restructure cost
can be
significant.
Although contract
termination can
be less costly
due to longer
operational
period.
Termination
•Site lease.
•Site restoration.
•Service
Contracts.
•Personnel cost
Other
•JV overhead
•Legal, etc..
Restructuring
cost can be low if
little legacy
infrastructure is
present.
If decision for
network sharing
is taken in the
renewal /
obsolescence
phase write-off
exposure can be
relative light both
for equipment
and site-build.
As most of the
network has
been deployed at
this stage the
write-off
exposure can be
significant even if
equipment can
be re-used.
Relative low
exposure if little
legacy
infrastructure is
present.
Economics of RAN sharing benefits.
Rollout Phase
Bulk (>80%) of sites
and nodes to be
deployed.
Steady State
80% of coverage and
sites deployed. Mainly
capacity additions and
coverage maintenance.
Modernization/
Obsolescence
Active element / node
replacement,
technology migration.
Site consolidation.
Passive sharing
• Site build
• Mast
• Rack / Ancillary
Active sharing
• MW/Fiber
• Electronics
• Spectrum
• Resources
Passive sharing
Low Capex level
Active sharing
Passive sharing
Medium Capex level
Active sharing
Substantial Capex
Capex Synergy
= Low = High
Synergy potential
Opex prevention
• Site lease
• Non-telco services
• Telco services
• Energy
• Resources
Opex saving if
absolute number
of site locations
are reduced.
Primarily Opex
prevention in
case of site
number
expansion.
Opex saving if
absolute number
of site locations
are reduced.
Primarily Opex
prevention in
case of site
number
expansion.
OPEX SynergySharing stages Restructure Cost
= Low = HighCost exposure
Write-off
Illustration
18Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
100%50%0%
Sites
0%
20%
40%
60%
80%
100%
CumulatedRevenue(Traffic)
The ugly tail … the low profitability areas.
Should drive sharing in low-traffic areas
50% revenue ≈ 10% sites
Low profitability
sites
Top 30% sites ≈ 80% revenue.
50% sites takes
less than 10% revenue
Illustration
Rural-like areasSub-urbanUrban
19Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Frequency
(MHz)
Site
(acq. + build)
Radio
(electronics)
Backhaul
(transport)
Backbone
(transport)
Core
(switch & control)
BSS
(bill & care)
Capex
prevention
Efficiency
enabler
40%-60% < 35% up-to 50% up-to 50%
Partly
possible
Less likely
Opex
prevention
Efficiency
enabler
< 35% ca. 35%
scale
discount
scale
discount
Partly
possible
Less likely
Regulatory
complexity
HIGH LOW LOWER LOWER LOWER HIGH HIGH
Network Sharing can provide better economics and
market timing …
BTS &
NODE-B
eNodeB
BSS
BSS
MNO 1
Core
MNO 2
Core
plmn 1
plmn 2
plmn 1 + plmn 2
(optional)
20Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Anatomy of network sharing.
RAN sharing guaranties competitive differentiation, operator
independency 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.
21Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Network Sharing Strategies
Network sharing.
A mean to close the mobile broadband coverage gap (in CEE).
Substantial improved
coverage, capacity boost and
quality of services to
the consumer at a Quality Level
NOT
economical viable in standalone.
Safe for Service by Sharing.
22Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
• Opex avoidance & savings.
• Substantial Capex avoidance.
• Shared Modernization.
• Shared LTE deployment.
• A Much better network.
Benefits.
UMTSGSM
2G, 3G & LTE RAN incl. BACKHAUL SHARE
CORE CORE
SERVICES SERVICES
BILL PRICE BRAND SALES BILL PRICE BRAND SALES
Rural areas1
LTE SHARING
800, 2100 & 2600 MHz
GSM
900 & 1800
GSM
900 & 1800
2G, 3G & LTE RAN incl. BACKHAUL SHARE
CORE CORE
SERVICES SERVICES
BILL PRICE BRAND SALES BILL PRICE BRAND SALES
Urban areas1
UMTS
900 & 2100
Note: frequency bands not to scale!
SHAREDOperator A Operator B
1 Note sharing spectrum between two (or more) MNOs might not be regulatory allowed.
Idealized Illustration
LTE
Network sharing flavors …
Capacity limited Coverage limited Rural
 Passive sharing.
 shared transport (possible).
 Independent frequencies.
 Active sharing (MOCN1)
 Shared transport.
 Frequencies sharing.
 Geographic sharing.
 One frequency sufficient.
 Wholesale/cost-sharing.,
HLRHSS
Core Core
HSS
Shared site and passives
Independent BTS, NB, eNB.
BSC
RNC
BSC
RNC
HLRHSS HSS
Shared Radio, aggregation
& frequencies (optional).
CoreCore
BSC
RNC
1 Multi-Operator Core Network supporting RAN Sharing, (*) For LTE there is no BSC/RNC, core networks connected directly to the eNode-B.
Site sharing (*) RAN Sharing (*) National Roaming (*)
HLRHSS HSS
BSC
RNC
BSC
RNC
Core Core
Wholesale arrangement,
geographical partnership.
23Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Common Frequency Sharing…
Solution for low-demand, rural areas and symmetric demand scenarios.
Frequency pooling (*)
HLRHLR
 1 operator share its
spectrum with others.
 Multiple operators pool their
spectrum assets together
and share total spectrum.
HLR
Shared Freq., Radio & aggregation.
CoreCore
1 MORAN = Multi-Operator Radio Access Network sharing of all active electronics with exception of
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.
...
...
 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).
 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.
 Multiple core networks connected to a common radio access
network (RAN) sharing a single frequency or a pool of frequencies.
 Service requirements & capabilities not limited by the sharing
requirements (i.e., resides in core network or service creation
platforms above the core network).
 Requires user equipment support (i.e., R8 or later).
 Non-supporting user equipment will ignore the broadcast system
information related to sharing functionality.
 Fairly complex coordination issues on resource allocation among
sharing parties, making this concept more interesting for low-traffic
rural areas (where demand is no issue) or highly asymmetric
traffic situations.
Shared IP
backhaul
eNode-B
LTE
24Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Network components mapped to network layers.
The deeper into the network infrastructure is shared the more the sharing
concept will appear as a merger or NetCo concept.
Radio Access
Network
CS & PS
Network
VAS
Network
Signaling
Network
IT & CS
Network
 Spectrum /
Frequencies
 GSM BTS
 GSM BSC
 GSM TRX
 3G Node-B
 3G RNC
 3G Carrier & Channel
elements
 e-Node-B (LTE RAN)
 Backhaul (MW & LL)
 Routers, switches and
multiplexing
 SW Licenses &
features.
 NMS & operations.
 Etc.
 Classical MSC/VLR
 R4 MSC Server &
Gateway
 Multiplexing
 GGSN & SGSN
(packet core).
 Evolved Packet Core.
 IP networks (routers,
FW, etc..)
 Backbone transport
 Interconnect
 NMS & operations.
 Etc.
 Classical HLR
 NG HLR
 IN platform
 Interconnect
 NMS & operations
 Etc.
 SMSC
 MMSC
 VMS
 WAP
 Portals
 3rd party content
 NMS & operations
 Etc…
 Billing system
 Rating
 Mediation
 CRM
 SAP/Finance
systems.
 Business Intelligence.
 Call center systems
(call routing, ..)
 OSS
 IT Operations.
 Etc.
Note: above categorization is guiding but not fully un-ambiguous.
Network Sharing
Network Merger – Netco concept
25Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Why one should NOT commence Network Sharing.
2 out of 3 NS deals considered are put on ice again!
Divest / Spin-off / merger
very complex
Complex Governance
Technology mismatch
26Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Rural Tower & RAN Sharing scenario (illustration)
Doing much more for a lot less refocus cash on areas that matters
Dismantling of surplus
Tower locations
650 SRAN
(new)
Shared Single
RAN deployment
650 SRAN
Shared
MNO1
650 Towers
Consolidated
MNO2
Tower
JV
500 Towers 500 Towers
0 Node-B
500 old BTS
xx% geo coverage yy% geo coverage
0 Node-B
500 old BTS
No Re-use
Consolidation Harmonization
Today
+1.5–2 Years
Towers JV (IPO optionality) Single RAN Sharing (NetCo).
More
RAN
Shared
backbone
Shared
backhaul
More
Towers
NodeB
BTS
MNO2
CN
RNC
BSC
Much better & efficient network!
End-game: 1,000 Towers
MNO1
CN
-350
35%
1,000 Towers
Consolidated
1,000 SRAN
(LTE option) End-game
High Capex Synergies (>50%)
by Joint procurement!
Real Opex saving!
 Opex equivalent to 500 Towers (1+1 “=“ ½).
 Better quality & more capacity (1 + 1 > 2 effect).
 Favorable cash impact compared to standalone
Rural & Sub-urban
Coverage focus ensure
configurationally &
operational simplicity
High Capex & Opex
avoidance, high
ROCE
No frequency sharing!
27Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
3-party rural network sharing (illustration only)
Doing much more for a lot less optimizing cash and margin.
Dismantling of
surplus Tower
locations
800 SRAN LTE
upgrades (new)
Shared Single RAN
deployment
800 SRAN
2&3G + LTE
B
800 Towers
Consolidated
C
Shared
350 Towers 440 Towers
800 SRAN
2&3G Nodes
Consolidation Harmonization
2012
2014
Towers (Rural – Sub-urban Areas). Single RAN (SRAN) Sharing.
Less
RAN
Shared
backbone
Shared
Backhaul
Fewer
Towers
NodeB
BTS
A CN
RNC
BSC
Optimized target
End-game: 1,000 Towers
B CN
-590
~40%
1,000 Towers
Consolidated
1,000 SRAN
Multi-mode End-game
A
600 Towers 350 SRAN
2&3G
440 2G & 3G
Legacy nodes
600 SRAN
2&3G
C CN
eNodeB
• 800 Towers shared by 3.
• 800 whilst effective paying for 267
(1+1+1 “=“ 1/3).
• Improved network with 33% to
130% increase in sites.
• Much improved TCO and ROI.
• Low LTE entry cost and future
modernization cost.
28Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
National Roaming boils down to 3 major
considerations.
No Coverage / No Network.
Wholesale Tariff better economics
than Network Cost & Invest.
Long rollout lead-time
National Roaming a timing-bridge.
Under-utilized network.
(“plenty” of capacity)
Wholesale revenue at no or
very little additional Cost and Invest.
Wholesale income more attractive
than risk of competitor network access.
GUEST HOST
29Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Profit & Loss … what to expect
Revenue
Technology Cost
Usage Cost−
Market Invest SAC & SRC
−
= EBITDA
Personnel Cost
Other Cost
−
−
−
Network Depreciation−
Spectrum Amortization−
Capex−
Spectrum invest−
Red color represent Technology driven cost
Revenue
Technology Cost
Usage Cost−
Market Invest SAC & SRC
−
= EBITDA
Personnel Cost
Other Cost
−
−
−
Network Depreciation−
Spectrum Amortization−
Capex−
Spectrum invest−
Red color represent Technology driven cost
Network SharingStandalone
Revenue
Technology Cost
Usage Cost−
Market Invest SAC & SRC
−
= EBITDA
Personnel Cost
Other Cost
−
−
−
Network Depreciation
−
Spectrum Amortization−
Capex−
Spectrum invest−
Red color represent Technology driven cost
National Roaming
Capex prevention
typically re-prioritized.
Opex savings &
prevention
Personnel savings by
resource sharing.
Less depreciation
(& some write-off)
High usage cost jvf.
Wholesale agreement
Personnel savings by
redundancies.
Capex prevention.
Low depreciation charges
(typically high write-off).
Higher Opex savings &
prevention
It is far from obvious that National Roaming should be more economical than
Network Sharing … Structurally it is more complex to get right.
30Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
National roaming … another way of sharing.
Why National Roaming?
• 1 party has coverage, the other not.
• per Technology (i.e., GSM-only, UMTS-only, …).
• Different regional spectrum positions.
• Contiguous well-defined network (e.g., 50 to 100s of radio
nodes).
• Often geographical splits
• Can also apply to infrastructure network sharing.
• Time to market.
• Customer experience can be controlled independently by
Roamer.
• Capacity is not an issue for the hosting MNO.
• Attractive economics compared to building network:
• Provides very similar benefits to infrastructure sharing.
• Roaming MNO gets Capex & Opex avoidance, but will have cost
associated with traffic on Hosting network.
• Hosting MNO gets wholesale revenue typically in low-traffic areas with
low or no profitability (i.e., increased utilization & efficiency).
• Regulatory encouragement (or enforcement).
• Relationships tends to be of temporary nature.
• 2G & 3G National Roaming are standardized with working
technical solutions used in several countries between MNO and
MVNO.
Typical Rural
 Geographic sharing.
 One frequency sufficient.
 Wholesale/cost-sharing.,
(*) For LTE there is no BSC/RNC, core networks connected directly to the eNode-B possibly via IP aggregation & switching.
National Roaming (*)
HLRHSS HSS
BSC
RNC
BSC
RNC
Core Core
Wholesale arrangement,
geographical partnership.
OpCo1 Host to OpCo 2 OpCo2 Host to OpCo1
31Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
National roaming … many case stories around the world!
 Geographic sharing.
 One frequency sufficient.
 Wholesale/cost-sharing.,
(*) For LTE there is no BSC/RNC, core networks
connected directly to the eNode-B possibly via IP
aggregation & switching.
Typical Rural
National Roaming (*)
HLRHSS HSS
BSC
RNC
BSC
RNC
Core Core
Wholesale arrangement,
geographical partnership.
OpCo1 Host to OpCo 2 OpCo2 Host to OpCo1
I have found2 no examples where an MNO
decommissioned its network for national roaming.
1 Note both AT&T and VERIZON was very much against this FCC ruling as the correctly pointed out that it is very difficult to control & plan for mobile data
traffic and that they were already spectrum constrained and therefore do not have excess capacity. 2 Though I have been part of discussions entertaining
such an idea.
Some examples;
• T-Mobile US (New York) & Cingular (California) – Terminated.
• T-Mobile US 2G roaming on AT&Ts network - Active.
• T-Mobile US 3G roaming on AT&Ts network – Not operational (too complex).
• FCC (US Regulator) issued a ruling (2011) requiring MNOs to sign mobile data
national roaming1 agreements with anyone who asks (at reasonable terms &
conditions … last not been specified by FCC).
• T-Mobile Austria on Hutch 3G network in rural areas – Active.
• Hutch on T-Mobile Austria’s GSM network – Active (decreasing)
• H3G UK on Orange GSM – Active (decreasing).
• O2 Germany, 2G national roaming on Deutsche Telekom GSM network outside their
own 2G coverage (particular rural and sub-urban areas) – Terminated.
• T-Mobile UK and Orange UK mutual national roaming on each other’s 2G networks
extending the coverage for both customer bases – Active.
• Free Mobile (Iliad) in France has a national roaming agreement with Orange. This
agreement covers both 2G and 3G – Active.
• India is likewise (in)famous for many 2G (“3G”) national roaming deals between the
as many mobile MNOs – Active (3G still a regulatory issue).
National roaming … can be a flawed business logic!
Why maybe not?
• Firstly, complexity is not so much in the technical area but very much contractual and ensuring
sufficient risk mitigation against operational disruption.
• Regulatory & competition authority issues
• If MNOs setup mutual agreements, Regulator might enforce those agreements onto other interested
parties (i.e., see 2011 FCC Ruling).
• Further Regulator might decide non-compliance with spectrum utilization or conditions of the
roaming party (i.e., its spectrum is no longer in use).
• Decommissioning of existing infrastructure and investments (i.e., write-offs).
• MNOs could financial compensate each other if decom infrastructure would be taken into use by
Hosting MNO.
• Operational risk of relying 100% on the other partners network.
• Compared with network sharing that provides for co-ownership & co-control of network.
• Can be mitigated to some extend in contract and by choosing symmetric areas (i.e., ensuring
symmetric threat levels)
• Can carry very substantial operational risks.
• Change of ownership.
• Bankruptcy.
• QoS & Customer Experience guaranty for 3G mobile data usage very difficult & carries great mutual
risks.
• Change of mind / contractual (even illegal) break-up or non-compliance.
• Tends to be very complex commercial negotiations, resulting contracts, processes and
procedures.
33Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Profitability & cash crunch.
Incumbent spectrum crunch.
MVNO / tier-2&3 MNO appetite.
Other business models …LTE as a Service.
Enablers.
Emerging business models – LTE network factory
Attractive (startup) cost economics.
Relative low Capex – cash optimized.
Increased spectral efficiency & utilization.
Provides.
Option:
Small cell centric
startup and
Capacity as a
Service.
Cash
optimized
startup via
virtualization
& OTT
based
services.
34Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Regulatory support.
Spare Spectrum (i.e., typical Startup).
MNO & MVNO appetite.
Other business models … ultra-efficient transformation.
Enablers.
Emerging business models – piggybacking on Virtualization & Cloud
Data-only QoS transparent network.
Network services to MNO & MVNO.
Dedicated OTT network services.
Provides.
3rd parties
delivers BSS /
OSS cloud
services to
SmartCo (off-
the-shelf)
3rd party, media companies,
MNO/MVNO CDN & SDNs.
3rd parties
(supplier)
delivers core
network
functionality
(i.e., HSS,
PCRF, etc..)
35Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Technology cost and synergy potential.
Illustration
Synergy potential
Mobile ONLY
Share of
Technology Opex
Managed services Network sharing
NT FTE Ca. 10% Typical 20%
HC reduction
Typically Capex
commitment
Min. 20% - 35%
NT Services Ca. 15%
>35% but depends on
network reduction.
Rental & Leasing Ca. 25% - 30%
Good savings
potential, though risk
for future sharing
optionality
>35% but depends on
network reduction.
Transmission
Ca. 5% - 10%
(can be a lot higher if majority
leased transport)
Opex – Capex
trade-off
More Opex – Capex
trade-off
IT FTE 5%
10% - 20%
HC reduction
Opex – Capex
trade-offs
Minor opportunities
<10% due to scale.
IT Services 25%
Minor opportunities
<10% due to scale.
Other 10% - 15% Minimum 10% pa At least 35%
€€€ (€)€€ (€)
Note: Above numbers serve as illustrations only. Different operations may have different Technology Opex distributions..
36Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Key messages.
What we need to be passionate about!
Network sharing provides cost reduction & increased quality.
Utilize technology to achieve the best operational performance
Sharing models for mobile applies to fixed broadband as well.
& don’t forget!
Maybe Even more so!
& increased complexity
RRH, SDR RAN, Single-RAN, FTTS, Virtualization, Cloud, …
& upfront cash needs
don’t over-focus on financial savings!
First things first
37Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Key elements for successful network sharing
CEOs agree with & endorse Network Sharing.
Sharing Partners have similar perceived benefits (win-win feel).
Focus on creating a better network for less.
Both parties share a similar end-goal and similar strategic outlook.
38Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
Last but not least.
Do consider that break-up can happen … and be prepared! (“legal stuff”)
Network sharing is a very long term engagement (“for Life”!)
39Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
The key value proposition of a mobile network
is ....
Freedom
& Mobility

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Network Sharing Benefits

  • 1. Network Sharing Fundamentals. (Updated & revisited thoughts on the benefits of network sharing) Dr. Kim Kyllesbech Larsen .
  • 2. Why sharing a part or all of the mobile network? Between 40% to 50% of sites are low or no profitable (“the ugly tail”) Frees up cash to be spend in areas that matters (“Save for Growth”). Effective Opex & Capex measure increasing operational efficiencies. Increased network quality for a lot less than standalone (“Best network”). Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals 2
  • 3. Network sharing boils down to 4 major considerations. Who to share with? (your equal, your better or your worse or all) What to share? (sites, passive, active, frequencies) Where to share? (rural, sub-urban, urban, all, etc.) How to share? (“the legal stuff”) Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals 3
  • 4. Mobile Emerging markets – growth slowing down. Revenue 2009 – 2012 + 48% pa. Revenue 2012 – 2017 9% pa. Opex 2012 – 2017 + 12% pa. & 3G has to get started - Top-line pressure (voice & sms). - Opex pressure. MEA Example Emerging Market Growth on expense of profitability Long-term development troublesome. 134 % 88 % 111 % 76 % 68 % 112 % 55 % 60 % 60 % 10 % 20 % 25 % Mob % 3G % 4Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 5. Tellabs global study1 …The End-of-Profit. The end to the mobile-only business model as we know it? Mobile carrier study “End-to-Profit” (Tellabs study). Business model breakdown Mounting cash pressure • Risk of End-of-Profit next 5 years? • Un-managed mobile data demand. •Short-term price-plans wo long-term view. What can be learned? Causes: - Modernization pressure. - Exponential data growth. - Capacity Crunch. - Need for more spectrum. - LTE introduction. - Revenue slow down. - Decline of legacy business. - Increased competition as market saturate. - Increased cost. 5Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 6. Europe 2020 … A soft landing? Europe Mobile Revenue Europe Mobile Opex Europe Mobile Ebitda 2008 2002 2020 37% 38% Just prior to crisis 2005 35% 31% 38% 2010 -15% +15% CAGR 0.8% CAGR 1.9% Total Revenue Technology Cost (ca. 15% – 20%) Usage Cost− Market Invest SAC & SRC − = EBITDA (WEU ca. 37% 1) Personnel Cost Other Cost − − − Network Depreciation− Spectrum Amortization− Capex (new rollout < +10+% of Revenue)− 1 BoA ML Global Wireless Matrix 1Q11, margin data for 4Q 2010. Spectrum invest (0.8 – 0.05 € per MHz-Pop)− Red color represent Technology driven cost + New Revenue? Defend philosophy! Stop / Slow Revenue Decline New business!? QoS, LTE, IoT, Media, FM C, … Efficiency game Optimize: Defend / Slow Ebitda Decline Increased cash pressure New technology / Modernize The Hunt for $30+Bn 1.9% 0.8% CAGR 13% Max 30+% 6Dr. Kim Kyllesbech Larsen , Network Sharing Fundamentals.
  • 7. Mobile broadband journey … be prepared. The lessons learned from mature markets. Messaging revenue decline (particular for Smartphones & OTT) Voice revenue decline (faster than data revenue uptake) Cash and margin pressure from new technology introduction. 7Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 8. Transform or Perish 8Dr. Kim Kyllesbech Larsen, , Network Sharing Fundamentals..
  • 9. So why should you share your network? 9Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 10. Going Dutch – converging to “The rule of Three”.  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.  Oct 2007 T-Mobile acquire Orange; network consolidation started.  Nov 2008 all Orange customers were migrated to T-Mobile’s radio network 2001 - 2004: 3G sharing – Capex avoidance strategy. 13Kim KyllesbechLarsen, TechnologyEconomics– Deutsche Telecom Kim KyllesbechLarsen, Technology- T-Mobile. 15 T-Mobile US – Cingular – The GSM Factory.  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. 2001 – 2004: Regional GSM Sharing JV. Deutsche Telekom sharing examples (1 of 4). T-Mobile– Orange NL merger… 2008 – 2009.  Price of Orange NL was ca. €1.3B or ca. €600 per customer.  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). 14Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 2008 Acquisition. 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. – From 2011 and onwards. 16Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom T-Mobile– Orange UK Network JV.  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.  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. 2009: EE Network (ad)Venture – The BIGGEST Network in UK! 17Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 10Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 11. Deutsche Telekom sharing examples (2 of 4). Going Dutch – converging to “The rule of Three”.  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.  Oct 2007 T-Mobile acquire Orange; network consolidation started.  Nov 2008 all Orange customers were migrated to T-Mobile’s radio network 2001 - 2004: 3G sharing – Capex avoidance strategy. 13Kim KyllesbechLarsen, TechnologyEconomics– Deutsche Telecom T-Mobile– Orange NL merger… 2008 – 2009.  Price of Orange NL was ca. €1.3B or ca. €600 per customer.  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). 14Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 2008 Acquisition. 11Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 12. Kim KyllesbechLarsen, Technology- T-Mobile. 15 T-Mobile US – Cingular – The GSM Factory.  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. 2001 – 2004: Regional GSM Sharing JV. Deutsche Telekom sharing examples (3 of 4). 12Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 13. 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. – From 2011 and onwards. 16Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom T-Mobile– Orange UK Network JV.  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.  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. 2009: EE Network (ad)Venture – The BIGGEST Network in UK! 17Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 13Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 14. Vodafone sharing examples. Kim Kyllesbech Larsen, Technology - T-Mobile. 18 Vodafone – Orange sharing … 2007.  Rural Area / Geographical sharing.  National roaming like sharing concept with joint field services.  Rural areas with population of less than 25,000 pops.  Ca. 1,500 Node-Bs where shared by YE2007 with max 5,000 by YE2009.  Venture frozen in 2009 as VF announced sharing deal with Telefonica. Network sharing agreement in Spain and Romania. (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. 19 Vodafone – Telefonica sharing … 2008.  Passive RAN network site sharing.  Traffic managed independently of each other.  Customers expected to benefit from improved coverage.  Benefits in the order of ”hundreds of million” £ for both over next 10 years.  Today (May 2012) they share 4,000 site locations. Network sharing agreements for Germany, Ireland and the UK with detailed discussions ongoing in the Czech Republic. (i.e., VF-Europe Opex in 2008 was £16.4 bn and TF-Europe 2008 Opex was in the order of £13 bn). Vodafone – Telefonica sharing … 2012.  Passive sharing including backhaul.  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. Getting a lot more for less …. Capex & Opex avoidance. 20Kim Kyllesbech Larsen, Technology Economics – Deutsche Telecom 14Dr. Kim Kyllesbech Larsen
  • 15. The Good and The Ugly. Recipe for successful merger (or network sharing) and is matching technology landscape and strategic outlook. Matching spectrum position and network grid are much more valuable (short-term) for synergies than complementary spectrum. Sprint - NextelAT&T – Cingular merger Matching technology landscape and strategic outlook. Good complementary spectrum (high grid match). Fairly symmetric & matching business structures and models. Mismatch in technology landscape & strategic outlook. Complementary spectrum but relative low grid match. Very different business structures and models. Dominated by Nextel 15Dr. Kim Kyllesbech Larsen
  • 16. Expectation management – the full sharing potential. Total Opex 100% Technology Opex NT 14% RAN saving RAN 7% Cluster Opex 40% Illustration Expect up-to 35% saving on Tech Opex Up-to 5% on Total Corporate Opex Termination cost 1.5 – 3+ × of Opex savings Integration Capex synergetic with BaU Capex Instant Cell split potential Enhanced Capacity Spectral efficiency gains (>10%+) 16Dr. Kim Kyllesbech Larsen
  • 17. Rollout Phase UK: 3G T-Mobile – 3 UK Steady State UK. T-Mobile UK – Orange JV (EE Ltd). Stages of sharing benefits. The best sharing strategy depends on the business cycle and technology age.  High Capex prevention.  Opex prevention.  Cash optimized startup.  Best network.  Little Capex benefits.  Opex savings.  Significant write-off.  High re-structuring cost.  Extended coverage.  High Capex prevention.  Opex savings.  Minor write-off.  Re-structuring cost.  Instant cell split.  Better network. < 5 years 5+ years UMTS - GSMLTE > 5+ years UMTS Passive sharing: Site Lease & Civil Works, Mast/Tower sharing, Ancillary & Rack sharing, and Backhaul Sharing. Active sharing: e.g., Frequencies, TRXs, PAs, Baseband, CPU, ports, …. Modernization Poland: PTC – Orange incl. LTE GSM – UMTS (LTE piggybacking) Illustration 17Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 18. Restructure cost can be significant. Although contract termination can be less costly due to longer operational period. Termination •Site lease. •Site restoration. •Service Contracts. •Personnel cost Other •JV overhead •Legal, etc.. Restructuring cost can be low if little legacy infrastructure is present. If decision for network sharing is taken in the renewal / obsolescence phase write-off exposure can be relative light both for equipment and site-build. As most of the network has been deployed at this stage the write-off exposure can be significant even if equipment can be re-used. Relative low exposure if little legacy infrastructure is present. Economics of RAN sharing benefits. Rollout Phase Bulk (>80%) of sites and nodes to be deployed. Steady State 80% of coverage and sites deployed. Mainly capacity additions and coverage maintenance. Modernization/ Obsolescence Active element / node replacement, technology migration. Site consolidation. Passive sharing • Site build • Mast • Rack / Ancillary Active sharing • MW/Fiber • Electronics • Spectrum • Resources Passive sharing Low Capex level Active sharing Passive sharing Medium Capex level Active sharing Substantial Capex Capex Synergy = Low = High Synergy potential Opex prevention • Site lease • Non-telco services • Telco services • Energy • Resources Opex saving if absolute number of site locations are reduced. Primarily Opex prevention in case of site number expansion. Opex saving if absolute number of site locations are reduced. Primarily Opex prevention in case of site number expansion. OPEX SynergySharing stages Restructure Cost = Low = HighCost exposure Write-off Illustration 18Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 19. 100%50%0% Sites 0% 20% 40% 60% 80% 100% CumulatedRevenue(Traffic) The ugly tail … the low profitability areas. Should drive sharing in low-traffic areas 50% revenue ≈ 10% sites Low profitability sites Top 30% sites ≈ 80% revenue. 50% sites takes less than 10% revenue Illustration Rural-like areasSub-urbanUrban 19Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 20. Frequency (MHz) Site (acq. + build) Radio (electronics) Backhaul (transport) Backbone (transport) Core (switch & control) BSS (bill & care) Capex prevention Efficiency enabler 40%-60% < 35% up-to 50% up-to 50% Partly possible Less likely Opex prevention Efficiency enabler < 35% ca. 35% scale discount scale discount Partly possible Less likely Regulatory complexity HIGH LOW LOWER LOWER LOWER HIGH HIGH Network Sharing can provide better economics and market timing … BTS & NODE-B eNodeB BSS BSS MNO 1 Core MNO 2 Core plmn 1 plmn 2 plmn 1 + plmn 2 (optional) 20Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 21. Anatomy of network sharing. RAN sharing guaranties competitive differentiation, operator independency 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. 21Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 22. Network Sharing Strategies Network sharing. A mean to close the mobile broadband coverage gap (in CEE). Substantial improved coverage, capacity boost and quality of services to the consumer at a Quality Level NOT economical viable in standalone. Safe for Service by Sharing. 22Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals. • Opex avoidance & savings. • Substantial Capex avoidance. • Shared Modernization. • Shared LTE deployment. • A Much better network. Benefits. UMTSGSM 2G, 3G & LTE RAN incl. BACKHAUL SHARE CORE CORE SERVICES SERVICES BILL PRICE BRAND SALES BILL PRICE BRAND SALES Rural areas1 LTE SHARING 800, 2100 & 2600 MHz GSM 900 & 1800 GSM 900 & 1800 2G, 3G & LTE RAN incl. BACKHAUL SHARE CORE CORE SERVICES SERVICES BILL PRICE BRAND SALES BILL PRICE BRAND SALES Urban areas1 UMTS 900 & 2100 Note: frequency bands not to scale! SHAREDOperator A Operator B 1 Note sharing spectrum between two (or more) MNOs might not be regulatory allowed. Idealized Illustration LTE
  • 23. Network sharing flavors … Capacity limited Coverage limited Rural  Passive sharing.  shared transport (possible).  Independent frequencies.  Active sharing (MOCN1)  Shared transport.  Frequencies sharing.  Geographic sharing.  One frequency sufficient.  Wholesale/cost-sharing., HLRHSS Core Core HSS Shared site and passives Independent BTS, NB, eNB. BSC RNC BSC RNC HLRHSS HSS Shared Radio, aggregation & frequencies (optional). CoreCore BSC RNC 1 Multi-Operator Core Network supporting RAN Sharing, (*) For LTE there is no BSC/RNC, core networks connected directly to the eNode-B. Site sharing (*) RAN Sharing (*) National Roaming (*) HLRHSS HSS BSC RNC BSC RNC Core Core Wholesale arrangement, geographical partnership. 23Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 24. Common Frequency Sharing… Solution for low-demand, rural areas and symmetric demand scenarios. Frequency pooling (*) HLRHLR  1 operator share its spectrum with others.  Multiple operators pool their spectrum assets together and share total spectrum. HLR Shared Freq., Radio & aggregation. CoreCore 1 MORAN = Multi-Operator Radio Access Network sharing of all active electronics with exception of 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. ... ...  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).  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.  Multiple core networks connected to a common radio access network (RAN) sharing a single frequency or a pool of frequencies.  Service requirements & capabilities not limited by the sharing requirements (i.e., resides in core network or service creation platforms above the core network).  Requires user equipment support (i.e., R8 or later).  Non-supporting user equipment will ignore the broadcast system information related to sharing functionality.  Fairly complex coordination issues on resource allocation among sharing parties, making this concept more interesting for low-traffic rural areas (where demand is no issue) or highly asymmetric traffic situations. Shared IP backhaul eNode-B LTE 24Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 25. Network components mapped to network layers. The deeper into the network infrastructure is shared the more the sharing concept will appear as a merger or NetCo concept. Radio Access Network CS & PS Network VAS Network Signaling Network IT & CS Network  Spectrum / Frequencies  GSM BTS  GSM BSC  GSM TRX  3G Node-B  3G RNC  3G Carrier & Channel elements  e-Node-B (LTE RAN)  Backhaul (MW & LL)  Routers, switches and multiplexing  SW Licenses & features.  NMS & operations.  Etc.  Classical MSC/VLR  R4 MSC Server & Gateway  Multiplexing  GGSN & SGSN (packet core).  Evolved Packet Core.  IP networks (routers, FW, etc..)  Backbone transport  Interconnect  NMS & operations.  Etc.  Classical HLR  NG HLR  IN platform  Interconnect  NMS & operations  Etc.  SMSC  MMSC  VMS  WAP  Portals  3rd party content  NMS & operations  Etc…  Billing system  Rating  Mediation  CRM  SAP/Finance systems.  Business Intelligence.  Call center systems (call routing, ..)  OSS  IT Operations.  Etc. Note: above categorization is guiding but not fully un-ambiguous. Network Sharing Network Merger – Netco concept 25Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 26. Why one should NOT commence Network Sharing. 2 out of 3 NS deals considered are put on ice again! Divest / Spin-off / merger very complex Complex Governance Technology mismatch 26Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 27. Rural Tower & RAN Sharing scenario (illustration) Doing much more for a lot less refocus cash on areas that matters Dismantling of surplus Tower locations 650 SRAN (new) Shared Single RAN deployment 650 SRAN Shared MNO1 650 Towers Consolidated MNO2 Tower JV 500 Towers 500 Towers 0 Node-B 500 old BTS xx% geo coverage yy% geo coverage 0 Node-B 500 old BTS No Re-use Consolidation Harmonization Today +1.5–2 Years Towers JV (IPO optionality) Single RAN Sharing (NetCo). More RAN Shared backbone Shared backhaul More Towers NodeB BTS MNO2 CN RNC BSC Much better & efficient network! End-game: 1,000 Towers MNO1 CN -350 35% 1,000 Towers Consolidated 1,000 SRAN (LTE option) End-game High Capex Synergies (>50%) by Joint procurement! Real Opex saving!  Opex equivalent to 500 Towers (1+1 “=“ ½).  Better quality & more capacity (1 + 1 > 2 effect).  Favorable cash impact compared to standalone Rural & Sub-urban Coverage focus ensure configurationally & operational simplicity High Capex & Opex avoidance, high ROCE No frequency sharing! 27Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 28. 3-party rural network sharing (illustration only) Doing much more for a lot less optimizing cash and margin. Dismantling of surplus Tower locations 800 SRAN LTE upgrades (new) Shared Single RAN deployment 800 SRAN 2&3G + LTE B 800 Towers Consolidated C Shared 350 Towers 440 Towers 800 SRAN 2&3G Nodes Consolidation Harmonization 2012 2014 Towers (Rural – Sub-urban Areas). Single RAN (SRAN) Sharing. Less RAN Shared backbone Shared Backhaul Fewer Towers NodeB BTS A CN RNC BSC Optimized target End-game: 1,000 Towers B CN -590 ~40% 1,000 Towers Consolidated 1,000 SRAN Multi-mode End-game A 600 Towers 350 SRAN 2&3G 440 2G & 3G Legacy nodes 600 SRAN 2&3G C CN eNodeB • 800 Towers shared by 3. • 800 whilst effective paying for 267 (1+1+1 “=“ 1/3). • Improved network with 33% to 130% increase in sites. • Much improved TCO and ROI. • Low LTE entry cost and future modernization cost. 28Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 29. National Roaming boils down to 3 major considerations. No Coverage / No Network. Wholesale Tariff better economics than Network Cost & Invest. Long rollout lead-time National Roaming a timing-bridge. Under-utilized network. (“plenty” of capacity) Wholesale revenue at no or very little additional Cost and Invest. Wholesale income more attractive than risk of competitor network access. GUEST HOST 29Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 30. Profit & Loss … what to expect Revenue Technology Cost Usage Cost− Market Invest SAC & SRC − = EBITDA Personnel Cost Other Cost − − − Network Depreciation− Spectrum Amortization− Capex− Spectrum invest− Red color represent Technology driven cost Revenue Technology Cost Usage Cost− Market Invest SAC & SRC − = EBITDA Personnel Cost Other Cost − − − Network Depreciation− Spectrum Amortization− Capex− Spectrum invest− Red color represent Technology driven cost Network SharingStandalone Revenue Technology Cost Usage Cost− Market Invest SAC & SRC − = EBITDA Personnel Cost Other Cost − − − Network Depreciation − Spectrum Amortization− Capex− Spectrum invest− Red color represent Technology driven cost National Roaming Capex prevention typically re-prioritized. Opex savings & prevention Personnel savings by resource sharing. Less depreciation (& some write-off) High usage cost jvf. Wholesale agreement Personnel savings by redundancies. Capex prevention. Low depreciation charges (typically high write-off). Higher Opex savings & prevention It is far from obvious that National Roaming should be more economical than Network Sharing … Structurally it is more complex to get right. 30Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 31. National roaming … another way of sharing. Why National Roaming? • 1 party has coverage, the other not. • per Technology (i.e., GSM-only, UMTS-only, …). • Different regional spectrum positions. • Contiguous well-defined network (e.g., 50 to 100s of radio nodes). • Often geographical splits • Can also apply to infrastructure network sharing. • Time to market. • Customer experience can be controlled independently by Roamer. • Capacity is not an issue for the hosting MNO. • Attractive economics compared to building network: • Provides very similar benefits to infrastructure sharing. • Roaming MNO gets Capex & Opex avoidance, but will have cost associated with traffic on Hosting network. • Hosting MNO gets wholesale revenue typically in low-traffic areas with low or no profitability (i.e., increased utilization & efficiency). • Regulatory encouragement (or enforcement). • Relationships tends to be of temporary nature. • 2G & 3G National Roaming are standardized with working technical solutions used in several countries between MNO and MVNO. Typical Rural  Geographic sharing.  One frequency sufficient.  Wholesale/cost-sharing., (*) For LTE there is no BSC/RNC, core networks connected directly to the eNode-B possibly via IP aggregation & switching. National Roaming (*) HLRHSS HSS BSC RNC BSC RNC Core Core Wholesale arrangement, geographical partnership. OpCo1 Host to OpCo 2 OpCo2 Host to OpCo1 31Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 32. National roaming … many case stories around the world!  Geographic sharing.  One frequency sufficient.  Wholesale/cost-sharing., (*) For LTE there is no BSC/RNC, core networks connected directly to the eNode-B possibly via IP aggregation & switching. Typical Rural National Roaming (*) HLRHSS HSS BSC RNC BSC RNC Core Core Wholesale arrangement, geographical partnership. OpCo1 Host to OpCo 2 OpCo2 Host to OpCo1 I have found2 no examples where an MNO decommissioned its network for national roaming. 1 Note both AT&T and VERIZON was very much against this FCC ruling as the correctly pointed out that it is very difficult to control & plan for mobile data traffic and that they were already spectrum constrained and therefore do not have excess capacity. 2 Though I have been part of discussions entertaining such an idea. Some examples; • T-Mobile US (New York) & Cingular (California) – Terminated. • T-Mobile US 2G roaming on AT&Ts network - Active. • T-Mobile US 3G roaming on AT&Ts network – Not operational (too complex). • FCC (US Regulator) issued a ruling (2011) requiring MNOs to sign mobile data national roaming1 agreements with anyone who asks (at reasonable terms & conditions … last not been specified by FCC). • T-Mobile Austria on Hutch 3G network in rural areas – Active. • Hutch on T-Mobile Austria’s GSM network – Active (decreasing) • H3G UK on Orange GSM – Active (decreasing). • O2 Germany, 2G national roaming on Deutsche Telekom GSM network outside their own 2G coverage (particular rural and sub-urban areas) – Terminated. • T-Mobile UK and Orange UK mutual national roaming on each other’s 2G networks extending the coverage for both customer bases – Active. • Free Mobile (Iliad) in France has a national roaming agreement with Orange. This agreement covers both 2G and 3G – Active. • India is likewise (in)famous for many 2G (“3G”) national roaming deals between the as many mobile MNOs – Active (3G still a regulatory issue).
  • 33. National roaming … can be a flawed business logic! Why maybe not? • Firstly, complexity is not so much in the technical area but very much contractual and ensuring sufficient risk mitigation against operational disruption. • Regulatory & competition authority issues • If MNOs setup mutual agreements, Regulator might enforce those agreements onto other interested parties (i.e., see 2011 FCC Ruling). • Further Regulator might decide non-compliance with spectrum utilization or conditions of the roaming party (i.e., its spectrum is no longer in use). • Decommissioning of existing infrastructure and investments (i.e., write-offs). • MNOs could financial compensate each other if decom infrastructure would be taken into use by Hosting MNO. • Operational risk of relying 100% on the other partners network. • Compared with network sharing that provides for co-ownership & co-control of network. • Can be mitigated to some extend in contract and by choosing symmetric areas (i.e., ensuring symmetric threat levels) • Can carry very substantial operational risks. • Change of ownership. • Bankruptcy. • QoS & Customer Experience guaranty for 3G mobile data usage very difficult & carries great mutual risks. • Change of mind / contractual (even illegal) break-up or non-compliance. • Tends to be very complex commercial negotiations, resulting contracts, processes and procedures. 33Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 34. Profitability & cash crunch. Incumbent spectrum crunch. MVNO / tier-2&3 MNO appetite. Other business models …LTE as a Service. Enablers. Emerging business models – LTE network factory Attractive (startup) cost economics. Relative low Capex – cash optimized. Increased spectral efficiency & utilization. Provides. Option: Small cell centric startup and Capacity as a Service. Cash optimized startup via virtualization & OTT based services. 34Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 35. Regulatory support. Spare Spectrum (i.e., typical Startup). MNO & MVNO appetite. Other business models … ultra-efficient transformation. Enablers. Emerging business models – piggybacking on Virtualization & Cloud Data-only QoS transparent network. Network services to MNO & MVNO. Dedicated OTT network services. Provides. 3rd parties delivers BSS / OSS cloud services to SmartCo (off- the-shelf) 3rd party, media companies, MNO/MVNO CDN & SDNs. 3rd parties (supplier) delivers core network functionality (i.e., HSS, PCRF, etc..) 35Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 36. Technology cost and synergy potential. Illustration Synergy potential Mobile ONLY Share of Technology Opex Managed services Network sharing NT FTE Ca. 10% Typical 20% HC reduction Typically Capex commitment Min. 20% - 35% NT Services Ca. 15% >35% but depends on network reduction. Rental & Leasing Ca. 25% - 30% Good savings potential, though risk for future sharing optionality >35% but depends on network reduction. Transmission Ca. 5% - 10% (can be a lot higher if majority leased transport) Opex – Capex trade-off More Opex – Capex trade-off IT FTE 5% 10% - 20% HC reduction Opex – Capex trade-offs Minor opportunities <10% due to scale. IT Services 25% Minor opportunities <10% due to scale. Other 10% - 15% Minimum 10% pa At least 35% €€€ (€)€€ (€) Note: Above numbers serve as illustrations only. Different operations may have different Technology Opex distributions.. 36Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 37. Key messages. What we need to be passionate about! Network sharing provides cost reduction & increased quality. Utilize technology to achieve the best operational performance Sharing models for mobile applies to fixed broadband as well. & don’t forget! Maybe Even more so! & increased complexity RRH, SDR RAN, Single-RAN, FTTS, Virtualization, Cloud, … & upfront cash needs don’t over-focus on financial savings! First things first 37Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 38. Key elements for successful network sharing CEOs agree with & endorse Network Sharing. Sharing Partners have similar perceived benefits (win-win feel). Focus on creating a better network for less. Both parties share a similar end-goal and similar strategic outlook. 38Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 39. Last but not least. Do consider that break-up can happen … and be prepared! (“legal stuff”) Network sharing is a very long term engagement (“for Life”!) 39Dr. Kim Kyllesbech Larsen, Network Sharing Fundamentals.
  • 40. The key value proposition of a mobile network is .... Freedom & Mobility