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Mobile Network Infrastructure Sharing - Industry Overview & Coleago's Approach

Coleago's experts provide an overview for CxOs about mobile network infrastructure sharing, including:
- Status, trends and drivers
- Potential solutions, benefits and risks.
- Approach, methodology, deliverables and timescales.
- Database of network sharing deals.

Mobile Network Infrastructure Sharing - Industry Overview & Coleago's Approach

  1. 1. Mobile Network Infrastructure Sharing Industry overview and Coleago’s approach Chris Buist, Director May 2016
  2. 2. © copyright Coleago 2016 Data traffic and global initiatives to provide rural broadband coverage will be the future drivers JVs between MNOs and tower sale-and-leaseback deals have taken off since 2009. In the last few years some multinational MNOs have started to establish captive tower companies. Sharing has also led some shareholders to consider consolidation. Looking forwards, new trends are likely to be rural/remote infrastructure sharing and increased spectrum sharing. Technologies such as NFV and SDN may open up new sharing opportunities. To identify potential sharing options, operators need to consider five dimensions: technology scope, geographical scope, architectural scope, potential partners and sourcing. Ultimately network sharing is driven by the need to maximise Enterprise Value. The major benefit from network sharing is a net reduction in network CapEx and OpEx, usually in the range from 10- 40% of the in-scope costs dependent on the sharing option. As with any major programme, there are numerous risks that need to be analysed and, where possible, mitigated. 1 Mobile Network Infrastructure Sharing Network sharing has grown rapidly since 2009 There is no time to lose because there is clear evidence of a first- mover advantage, or at least a last-mover disadvantage. For passive/active sharing JVs, it is better to choose your preferred partner than be handed a partner by default or, in the case of a three- player market, left with no partner. Similarly, information from completed tower sales shows that the first to market will command a higher price than the followers. Coleago’s approach is applicable regardless of the sharing option selected. It is designed to work as well for a tower deal with a TowerCo as it does for an active RAN share with another MNO. Typically, it takes between 9 and 15 months for the first three phases depending on the sharing option, regulatory approval(s), the need to transfer assets and the willingness/ambition of the partners. The Transformation phase may take several years to deliver all the savings. During the last decade our consultants have built up experience across every type of sharing deal and all phases. We provide a complete range of services to support or lead your project team throughout the process. First-mover advantage – operators need to act Executive Summary Mobile data traffic is doubling every two years. Revenues are growing much more slowly or even falling. Financial performance will suffer unless operators take action to share infra- structure or enter into M&A. In many emerging markets, sharing is also being driven by limited spectrum availability or government ambition to improve rural broadband services – the latter driven by a plethora of global initiatives led by the UN, NGOs and commercial entities such as the GSMA. • Internal & external analysis • Business case • Approach partner(s) • Negotiate Heads of Agreement Strategy • Regulatory approval • Design “To-Be” • Negotiate Agreement(s) • Conduct due diligence Negotiation • Plan • Establish JV • Transfer staff, assets • Implement processes, systems Transition • Depends on sharing scope Transformation
  3. 3. © copyright Coleago 2016 2 Section: Page 1 Industry Status, Trends and Drivers 2 2 Potential Solutions, Benefits and Risks 7 3 Coleago’s Approach 14 4 Coleago’s Experience and Services 21 5 Why Coleago? Appendix: A Connecting the Unconnected: Rural/Remote Broadband Initiatives B Network Sharing Database and Regional Indexes C Tower Companies D About Coleago E Contacts Contents Mobile Network Infrastructure Sharing
  4. 4. © copyright Coleago 2016 Global situation. Current and future trends. Key drivers. Industry status, trends and drivers 3 1 Mobile Network Infrastructure Sharing
  5. 5. © copyright Coleago 2016 Network sharing has grown rapidly since 2009 4 Mobile Network Infrastructure Sharing 1. Industry status, trends and drivers Countries shaded according to deal with “deepest” extent of sharing. Status is based on public announcements to end-2015. Excludes national roaming, MVNOs, transmission-only, captive tower companies and informal or unannounced site sharing deals.
  6. 6. © copyright Coleago 2016 Current and future trends in mobile network sharing Current trends Mobile network sharing is not new. It has been around for decades in one form or another, starting with national roaming and site sharing – usually encouraged or mandated by regulators to help new entrants. Four trends have emerged since the millennium:  Network sharing Joint Ventures (JVs) between MNOs Whereas site sharing started off in many markets as a mutual exchange involving a small percentage of sites, a JV can go much further to maximise the number of shared sites and cost savings, typically 25-40% of the in-scope costs. Furthermore the scope of radio access network (RAN) sharing has been extending from passive to active (MORAN) and, in some cases, to spectrum pooling/sharing (MOCN).  Tower sale-and-lease-back deals By the end of 2015, some 45 operators had sold their towers to third parties (or formed joint ventures) and leased them back. The majority of these transactions have been in Africa but similar deals are now taking place in all other regions. Given their long-term secure cash flows and growth prospects, tower companies are attracting considerable Private Equity (PE) investment thereby facilitating further deals.  Captive tower companies Separating passive infrastructure into a subsidiary may be beneficial from an operational efficiency perspective. It may also open up a range of alternative financing options including joint ventures, stock exchange flotation or eventually a sale. Recent examples include Airtel Africa, América Móvil (Telesites), Axiata (edotco), Telefónica (Telxius) and Telecom Italia (INWIT). It may explain some of the recent drop-off in sale-and-lease-back deals.  In-market consolidation Undoubtedly discussions about sharing are leading some shareholders to be more radical and consider consolidation; Coleago believes that most markets will end up within the next five years with only three mobile operators and two (shared) RANs. Future trends Three further trends are expected to emerge over the next five years:  Rural/remote infrastructure sharing Most MNOs have finished rolling out 2G, and in some cases 3G, coverage as far as is financially feasible. Any further roll-out will be slow and depend on GDP growth and unit cost reductions. Most governments have now developed national broadband plans, encouraged by the ITU and the Broadband Commission, that include objectives to provide broadband access to rural areas (see next page). Usually the only cost-effective solution to achieve such an objective is 3G or 4G infrastructure shared between two or more MNOs using active sharing or roaming.  Network Functions Virtualisation (NFV) and Software-Defined Networking (SDN) NFV and SDN are emerging complementary technology developments that might enable and encourage further types of network sharing in the future, depending on how standards and OEM products/services evolve. In particular they may enable much greater core network sharing.  Spectrum sharing There are currently 14 spectrum pooling/sharing (MOCN) joint ventures between MNOs. With mobile data traffic doubling every two years, MOCN deals are likely to increase but NRAs will still be under considerable pressure to release more spectrum. Some NRAs such as the FCC in the USA and Ofcom in the UK are evaluating advanced spectrum sharing using “lightly licensed” or unlicensed spectrum. 5 Mobile Network Infrastructure Sharing 1. Industry status, trends and drivers More than 60% of the deals to date are RAN-sharing joint ventures that maximise savings. Tower companies are expanding rapidly with the backing of PE funds but in the last few years MNOs have also started to establish captive tower companies. Of the future trends, rural/remote sharing is probably the most significant given the sums involved and the plethora of global initiatives led by UN bodies such as the ITU, UNESCO and the World Bank.
  7. 7. © copyright Coleago 2016 Drivers: EBITDA pressure, spectrum scarcity and government policy What is driving the huge increase in sharing, tower sales and consolidation? The uptick in sharing deals since 2009 has been due almost exclusively to EBITDA pressure but this is set to change with the global initiatives to provide rural/remote broadband coverage. EBITDA pressure from competition and the data tsunami EBITDA pressure has been and will continue to be the predominant driver, be it as a result of revenue competition (new entrants, MVNOs or OTT players), regulators reducing termination rates or international roaming fees (Europe and Africa), or the rapid increase in mobile data traffic. The latter is possibly the most significant, with data traffic forecast to double every two years. LTE roll-out has been the “burning platform” for numerous network sharing deals. LTE creates two major cost pressures for an operator. Initially it requires a major capital investment in licence/spectrum fees, network elements and transmission, with a commensurate increase in operating costs. Later, as take-up increases, LTE users consume two to three times the amount of data compared to 3G users, incurring further capital and operating expenditure but with limited revenue upside. Spectrum scarcity will be a driver in some markets In many emerging markets with more than four mobile and fixed- wireless operators, limited spectrum availability is causing operators to evaluate MOCN sharing versus consolidation. Which direction they choose to go will depend on government competition policy, shareholder objectives and the business case. Connecting the unconnected: rural/remote broadband initiatives At the last count there were more than ten global initiatives with a similar objective: to “connect the unconnected” or in other words to provide broadband services in rural/remote areas to those who currently don’t have access to the Internet. Putting aside the question of how effective they are, there has undoubtedly been some progress at the national level as most countries now have a national broadband plan, although the quality of the plans and the implementation progress to date are mixed to say the least. Similarly, many government departments and regulators have realised that mobile is the most cost-effective technology for such areas and that infrastructure sharing is a key enabler. Consequently some governments have become much more proactive about sharing and have started to change their regulatory frameworks accordingly. Yet the industry has not appreciated two of the key ingredients to finding a solution for such remote areas:  All operators will need to actively share a single network  The government will also need to provide fiscal measures (e.g., tax changes, licence/spectrum fee reductions, USF funding, etc.) Without this common understanding, progress will continue to be slow and patchy. 6 Mobile Network Infrastructure Sharing 1. Industry status, trends and drivers EBITDA pressure has been and will continue to be the predominant driver. Government policy related to broadband objectives for rural/remote areas will become increasingly more important over the next five years. Connecting the unconnected: making sense of the initiatives See Appendix A for further details EBITDA: Earnings Before Interest, Tax, Depreciation and Amortisation
  8. 8. © copyright Coleago 2016 Five dimensions of network sharing. Maximising Enterprise Value. Common risks. Potential solutions, benefits and risks 7 2 Mobile Network Infrastructure Sharing
  9. 9. © copyright Coleago 2016 The five dimensions of network sharing – technology scope It is all too easy to jump to a solution without considering all the possible options. Every sharing option has its own combination of benefits and risks that are worth comparing before selecting a preferred way forward. To identify potential sharing options, use the five dimensions shown in the figure above and described in this section, namely: technology scope, architectural scope, geographical scope, potential partners and sourcing. There may be as many as 50 theoretical options. They can usually be narrowed down to a few main ones with a number of variations thereon, all of which need to be evaluated and compared against a “no-sharing” base case. If the shareholders and management team are open-minded, then the other extreme should also be evaluated, i.e., a merger or acquisition. For the main options, there will also be a number of “what-if?” scenarios to evaluate, for example, timing, future spectrum events, exit of either partner, etc. and a comparison of alternative payment mechanisms. There may also be one or two combinations to consider, for example, an active RAN share followed by a tower sale-and-lease-back deal once the sites have been rationalised, or vice versa. Savings from network sharing are greater for new networks than from existing (legacy) networks. Rationalising legacy networks requires sites to be dismantled or modified and equipment to be relocated or scrapped, the costs of which will reduce the net savings. Recent spectrum events relating to LTE and 2G/3G re-farming present a major opportunity and should be the catalyst to evaluate network sharing before investing in new sites or equipment. However the legacy sites and equipment will almost certainly affect the decision as to what technology to include in the sharing scope. Differences between the sharing partners in terms of their existing equipment (2G versus 3G, outdoor versus indoor, depreciated value, energy consumption, etc.) and spectrum bands may cause the partners, for example, to limit their sharing to the roll-out of new 4G equipment. Whatever the differences, it is usually worth evaluating all the technology options to understand the potential payback. Examples:  Canada: Rogers and Videotron is 4G-only  Greece: Vodafone and Wind is 2G/3G-only  Sweden: Telia and Tele2 is 3G-only, Tele2 and Telenor is 2G/4G- only 8 Mobile Network Infrastructure Sharing Identify potential sharing options by considering these five dimensions: technology scope, architectural scope, geographical scope, potential partners and sourcing. 2. Potential solutions, benefits and risks Technology scope: 2G, 3G, 4G, WiFi? Sourcing
  10. 10. © copyright Coleago 2016 The five dimensions of network sharing – architectural scope 9 Mobile Network Infrastructure Sharing 2. Potential solutions, benefits and risks The table at right shows the main architectural models for network sharing. Undoubtedly active sharing provides the greatest total savings. However it is important to understand the incremental benefit over the other models particularly given variations in some of the other network sharing dimensions, e.g., potential partners and sourcing. If the two potential partners are about to invest in new RAN equipment to introduce new technology (3G or 4G), then an active share becomes much more attractive. Less than 10% of network sharing deals involve spectrum sharing or pooling (MOCN) for a variety of reasons, such as:  Both partners have sufficient spectrum for their needs (capacity and broadband speed) taking into account features such as carrier aggregation  One partner has a spectrum advantage and is unwilling to share it for competitive reasons  The regulator is unwilling to sanction spectrum trading or sharing. As mobile data traffic continues to grow, regulators will be pressured to release more spectrum. In some markets, spectrum pooling may be one of the solutions to this demand. To date there are no Core Network (GWCN) sharing deals because regulators have strongly opposed such arrangements for reasons of competition. However, developments in NFV and SDN may change this situation and therefore sharing agreements should recognise this potential future change in scope. Examples:  Bangladesh: Airtel and Telenor (Grameenphone) is passive  Denmark: Telenor and Telia is active (MOCN)  UK: EE and Hutchison is active (MORAN) MORAN: Multi-Operator Radio Access Network MOCN: Multi-Operator Core Network GWCN: Gateway Core Network MVNO: Mobile Virtual Network Operator Architectural scope Architectural Model Site Antennas& feeders RANelements Transmission (backhaul) Spectrum Corenetwork elements Transmission (backbone) Passive Active RAN Transmission Core Network (GWCN) National Roaming Full MVNO Thin MVNO MORAN MOCN
  11. 11. © copyright Coleago 2016 The five dimensions of network sharing – geographical scope and potential partners Urban areas usually present more valuable opportunities than rural areas for competitive differentiation in terms of network quality, in- building coverage, service features, etc. and so it often makes strategic sense not to share in such areas – but where to draw the line? For the same reason, regulatory or competition authorities may impose a limit on the geographical extent of network sharing; in Sweden, Telenor and Hutchison were only allowed to share their 3G RANs up to a maximum 70% population coverage (since relaxed). CapEx and OpEx differ between rural (typically towers) and urban (typically rooftop) sites resulting in different payback periods and NPV. Urban sites may also present difficulties in terms of space availability, radiation limits, planning restrictions, etc. Given the emerging trend to extend broadband coverage to rural/remote areas (see page 6), it may be necessary to consider different sharing arrangements for urban, rural and remote areas. Taking a theoretical example of a country with four MNOs, it might end up with two MNOs sharing in the urban and rural areas, the other two MNOs only sharing in rural areas and all four MNOs sharing in the remote areas. Geography is also an important aspect when considering the sourcing dimension (next page). An approach used in some sharing deals is to partition the country between the parties for design, build and O&M, for example, Vodafone and O2 in the UK. Other examples:  Finland: Telia and DNA is rural-only, equating to 50% land area and 15% of the population  France: SFR and Bouygues is rural-only, equating to 57% of the population  Greece: Vodafone and Wind is rural and limited selected urban areas, equating to 70% of rural and 40% of urban population 10 Mobile Network Infrastructure Sharing Geographical scope There may only be a few potential MNO partners or tower companies from which to choose but you still need to evaluate their fit against a number of criteria (see chart above). High-level examples of the evaluation criteria include:  Commercial fit: for example, market share, competitive differentiation (including brand)  Technical fit: in terms of spectrum (and therefore site grid), technologies, vendors and MS providers  Cultural fit: experience from any existing relationship, management styles, corporate values, etc.  Ownership: international versus local, public versus private, shareholder ambitions, etc. Note that the evaluation score of a potential partner may differ according to the sharing option being evaluated. Potential partners 2. Potential solutions, benefits and risks
  12. 12. © copyright Coleago 2016 The five dimensions of network sharing – sourcing 11 Mobile Network Infrastructure Sharing 2. Potential solutions, benefits and risks Joint Venture (JV) JV outsources to MSP JV outsources geographically to Partners Unilateral or Bilateral For active sharing and some passive sharing deals, a 50:50 JV is the norm. It will be the overall authority for designing, building and operating the shared network. However responsibility for any of these activities may be undertaken by the JV itself or outsourced, possibly on a geographical basis, to:  The JV partners: one or both of the partners may be the best solution for delivering some of the scope, for example, each partner could take responsibility for designing and building the shared network in different geographical areas with the JV responsible for overall design authority, programme management and O&M  Managed Service (MS) provider(s): one or more MS providers may be part of the solution; their contract(s) could also be extended to include the (unshared) legacy networks, thereby providing benefits beyond the network sharing itself. By its nature, roaming is a unilateral or bilateral arrangement.
  13. 13. © copyright Coleago 2016 Ultimately network sharing is driven by the need to maximise Enterprise Value 12 Mobile Network Infrastructure Sharing 2. Potential solutions, benefits and risks Network sharing’s impact on Enterprise Value (EV) is primarily through a net reduction in network CapEx and OpEx, which in turn improves EBITDA, ROCE and the EV. EBITDA: Earnings Before Interest, Tax, Depreciation and Amortisation ROCE: Return on Capital Employed The major benefit from network sharing is a net reduction in network Capital Expenditure (CapEx) and Operating Expenditure (OpEx). The table at top right shows the typical savings for each type of architectural option (see page 9) based on modelling of two MNOs in a developing market. Dependent on the option being considered, there may be additional up-front costs, for example, relocating equipment, dismantling sites, transitioning staff to a JV, creating new process/OSS interfaces, etc.. The payback period on these costs is usually fast but needs to be evaluated at the overall level for the business case and at the detailed (site) level during implementation. Some of the cost savings may be converted into revenue benefits by improvements in the addressable market, market share and ARPU as a result of:  Faster time to market (coverage and services)  Greater geographical coverage  Better performance in terms of quality and bandwidth (in the case of MOCN)  Ability to offer more competitive tariffs. From the government’s perspective the benefits are typically:  Fiscal: (dependent on the tax regime) increased tax income due to the MNOs’ revenue and cost benefits  GDP: impacted by the increased addressable market, more competitive tariffs, etc.  Environmental: reduction in total carbon footprint and visual pollution (fewer towers). Although greatly simplified, the table at lower right summarises the differences between the architectural options when comparing some of they key selection criteria. Passive Active (MORAN) Active (MOCN) Roaming Savings 2 3 4 4 Set-up time 1 1 1 4 Control over roll- out and quality 4 4 4 1 Regulatory approval 4 4 2 1 Passive Passive& backhaul Active (MORAN) Active (MOCN) New CapEx 18% 20% 33% 33% Network OpEx 9% 12% 20% 21%  Percentages are of total network OpEx and CapEx  Coleago “rule of thumb” is 20-40% of in-scope costs  Legacy network rationalisation typically reduces site count by 30% Source: Infrastructure Sharing for MNOs, Nokia (2007)
  14. 14. © copyright Coleago 2016 Maximising the savings by combining tower sales, active sharing and outsourcing deals 13 Mobile Network Infrastructure Sharing 2. Potential solutions, benefits and risks To maximise their savings, MNOs that have completed TowerCo deals need to look at how they might form active sharing partnerships and vice versa. Furthermore are there additional savings to be had from outsourcing to a Managed Services Provider (MSP)? Brazil provides some good examples. In early 2013 Telefónica (Vivo) sold its towers to SBA and a few months later entered into an active sharing agreement with América Móvil (Claro). Meanwhile, Oi and TIM Brasil had entered into an active sharing agreement just ahead of their competitors. Subsequently, in 2014, Oi sold its towers to SBA and TIM sold its towers to American Tower. There may still be further savings to be had from network outsourcing, as only Oi and Vivo have entered into such agreements to date. Maximising savings – Brazilian examples In markets with more than three MNOs, sharing might be a precursor to consolidation as demonstrated in Denmark where the local units of TeliaSonera and Telenor set up an active network sharing JV in 2011. In December 2014 the pair announced their intention to complete a full merger but retracted the decision in light of opposition from the European Commission. Australia and Ireland have shown that sharing doesn’t preclude consolidation with a different partner:  In Australia in 2004, the four MNOs entered into two sharing deals: Telstra with Hutchison (3), and Optus with Vodafone. In 2009 Vodafone and Hutchison agreed to merge, followed in 2010 by Telstra and Hutchison exiting their network sharing JV – a process that took until 2012 to complete.  In Ireland in 2011-12, the four MNOs entered into two sharing deals: Vodafone with Hutchison (3), and Eircom (Meteor) with Telefónica (O2). In 2014 Hutchison acquired O2 Ireland; one of the regulatory conditions to approve the acquisition was that Hutchison must honour the O2 network sharing agreement with Eircom. At the time of writing, the UK presents a similar conundrum. EE and Hutchison (3 UK) have had an active network sharing JV since 2007, while Vodafone and Telefónica (O2 UK) established theirs in 2012. Hutchison has recently entered into negotiations to acquire O2 from Telefónica. Should the acquisition be agreed between the parties, it will not make technical or financial sense for 3/O2 to remain in both network sharing JVs. Whichever JV 3/O2 exits will put the jilted party at a financial disadvantage to the other MNOs. 3/O2 will need to square the circle between relinquishing/trading spectrum (if required by the EC), selecting the lowest-cost network sharing JV and placating its jilted partner. It is looking increasingly unlikely that this deal will proceed due to the opposition of the European Commission and Ofcom. Network sharing and consolidation – examples from Denmark, Australia, Ireland and the UK Given the mobile data traffic forecasts, MNOs need to maximise their network savings. That means using all means available to them: a combination of tower sale-and- leasebacks, active sharing and outsourcing to managed service providers.
  15. 15. © copyright Coleago 2016 As with any major programme, there are numerous risks that could materialise 14 Mobile Network Infrastructure Sharing Risk management throughout the programme is as critical as managing benefits delivery. 2. Potential solutions, benefits and risks Risk Description Timing Mitigation Regulatory approval Regulator or competition authority will not approve Negotiation phase Develop argumentation during Strategy phase and sound out regulator and competition authority as early as possible Competitor objections Competitor takes legal action to block deal; most likely to occur in spectrum pooling option Negotiation phase Develop argumentation during Strategy phase and sound out regulator and competition authority as early as possible Partner conflict Distrust, lack of respect or arguments Strategy or Negotiation phases Ensure both parties objectives are clear and aligned; analyse cultural fit, etc. during Strategy phase; put robust governance in place from day one Change of ownership Ownership of one party changes (c.f. Australia, Ireland and UK) Any phase Analyse during Strategy phase; ensure that agreement anticipates possibility; may be reason for a potential partner not wishing to enter into network sharing Loss of competitive differentiation Reduces/hinders competitive differentiation Any phase Analyse during Strategy phase to: • Ensure network sharing is not disadvantageous • Provide argumentation for regulator and competition authority Proprietary information leakage Proprietary strategic information is passed to competitor Any phase Develop confidentiality/security plan at start of programme and communicate to all parties Technical incompatibilities Many possibilities, e.g., differences in spectrum bands reduce site sharing benefits Strategy phase Analyse during Strategy phase to assess suitability of potential partners Legacy networks, systems or contracts Legacy networks, systems or contracts complicate or hinder network sharing leading to a reduction in sharing benefits Strategy phase Analyse during Strategy phase to assess suitability of potential partners and benefits of sharing Inability to manage customer experience Breakdown in end-to-end customer experience management Any phase Ensure that governance and systems (OSS/BSS) will enable desired CEM objectives to be achieved
  16. 16. © copyright Coleago 2016 Overview of our approach, methodology, deliverables and indicative timescales. Coleago’s approach 15 3 Mobile Network Infrastructure Sharing
  17. 17. © copyright Coleago 2016 Overview of Coleago’s approach to network sharing 16 Mobile Network Infrastructure Sharing 3. Coleago’s Approach Phases Strategy Negotiation Transition Transformation Responsibility Prospective Partners Prospective Partners Partners and JV JV Steps Internal & external analysis Business case Partner engagement Obtain regulatory approval Design “To-Be” Negotiate Agreement(s) Conduct due diligence Plan Transition Depends on scope Project management Internal and external communications Deliverables Business Case Data Room Information Memorandum (TowerCo only) Heads of Agreement Regulatory approval(s) “Target Operating Model (TOM)” design Agreement(s) Legal entity and financing Staff, assets, contracts, etc. transferred from parents Transformation (within parents) JV operational OpEx and CapEx savings from, e.g.:  Site dismantling  Equipment relocation or replacement  Subcontract renegotiation Duration 4-5 months 2-5 months but may be longer dependent on the regulatory approval 4-6 months Months to years Variants on the approach This approach is applicable regardless of the sharing option. It is designed to work as well for a tower deal with a TowerCo as it does for an active RAN share with another MNO. Examples of how the approach varies:  For sharing with another MNO, the Information Memorandum is not required as the partner selection is not conducted through a formal, competitive process  The form of the Agreements referred to in the Negotiation phase will depend on the sharing option, for example, for a tower deal a Sale/Purchase Agreement and Master Lease Agreement will be needed  For some sharing options, the entity referred to in the Transition and Transformation phases may not be a joint venture; for example, it may be a subsidiary of a tower company or one of the MNOs. This approach is applicable regardless of the sharing option. It is designed to work as well for a tower deal with a TowerCo as it does for an active RAN share with another MNO. Milestone
  18. 18. © copyright Coleago 2016 Strategy phase 17 Mobile Network Infrastructure Sharing 3. Coleago’s Approach The sequence of activities in this first phase depends on when the two prospective partners make contact. Ideally, “do your homework” (i.e., the Business Case) before contacting the preferred partner(s). Establish the business objectives for network sharing Agree clear, explicit, documented business objectives that the company wishes to achieve from network sharing. They may be revised during the project but they are the fundamental test at each of the key decision points: will we meet or exceed the objectives? Internal and external analysis Before developing a spreadsheet model, there are a number of important analyses to complete such as:  “As-Is” analysis (business plan, processes, people, assets, systems)  Legal and regulatory analysis  Potential partners (see page 10)  Risk analysis (see page 14). Quantitative analysis  Determine the sharing options, scenarios, sensitivities and payment mechanisms to model  Plan and collect all input data and assumptions; set up the (electronic) Data Room  Set up the model (design, build and test)  Analyse the model outputs  Evaluate all benefits and risks. Review and approve the Business Case Review the Business Case with the project steering group before obtaining Board or shareholder approval. At this point, there may be a no-go decision. Approach the prospective partner(s) For TowerCos, prepare an Information Memorandum and run a competitive process to select the best partner. For MNOs, approach the preferred partner with a high-level proposal based on the internal Business Case. It is important to get the relationship off to a good start so the more preparation (i.e., the previously-described activities) the better. Negotiate and sign Heads of Agreement Negotiate a Heads of Agreement to ensure that the most critical issues are resolved before entering into detailed negotiations or contacting the regulator and competition authority, i.e., the next phase. Again, at this point, there may be a no-go decision. Activities  Set up project (see page 20)  Develop Business Case  Run selection process (TowerCo only)  Negotiate and sign Heads of Agreement  Communicate internally and externally (see page 20) Objectives  Project and Security Plans  Integrated commercial, technical and financial model  Business Case  Information Memorandum (TowerCo only)  Heads of Agreement (aka Memorandum of Understanding)  Press releases and staff communications OutputsThe overriding objectives of the Strategy phase are to develop the Business Case and sign a Heads of Agreement with the preferred partner. There are two associated decision points where the Board should be asked to make a go/no-go decision.
  19. 19. © copyright Coleago 2016 Negotiation phase 18 Mobile Network Infrastructure Sharing 3. Coleago’s Approach Obtain regulatory approval(s) The process and timing to obtain the necessary regulatory approvals depends on the sharing option and the applicable local legal and regulatory framework. In general, it is better to consult the telecommunications and competition authorities as early as possible to ensure that the sharing option and agreements take into account their policies, requirements, etc. Design “To-Be” entities A lot of preparatory work is required to develop the details needed for the Agreement(s). Having agreed on the sharing option in the Strategy phase, the teams now need to develop the governance structure, process maps, RACI tables, organisation structures, high- level job descriptions, KPIs and network/OSS architectures for the JV and parent companies. This will enable the teams to define interfaces between the entities, identify the resources (assets, contracts, people, etc.) to be transferred or procured and prepare the Implementation Plan. Prepare JV Business Plan and update Business Cases Whereas during the Strategy phase the savings estimates are only accurate to a high order of magnitude, the project teams now need to develop a more accurate picture. The accuracy will depend on the resources and time available: if limited, one approach is to analyse a number of sample/pilot areas in detail in order to adjust the key assumptions for the whole in-scope network. Outputs from this activity include the commercial terms, JV Business Plan and updated Business Cases. Negotiate and sign Agreement(s) All the previous activities will enable the appropriate agreements to be drafted and negotiated, all of which usually takes place in parallel (see schedule on page 21). Signature will depend on the partners’ governance processes; completion will usually be subject to obtaining final regulatory approval and, if appropriate, completing due diligence. Again, at this point, there may be a no-go decision. Undertake appropriate Due Diligence (DD) The need for a DD and its scope/duration will depend on the sharing option and what, if anything, is being transferred to the JV. Activities  Obtain regulatory approval  Design “To-Be” entities and prepare Implementation Plan  Prepare JV Business Plan and update Business Cases  Negotiate and sign Agreement(s)  Undertake appropriate due diligence  Communicate internally and externally (see page 20) Objectives  “To-Be” design  High-level Implementation Plan  JV Business Plan  Updated Business Cases  Regulatory approval(s)  Agreement(s)  Press releases and staff communications  Due diligence reports, if required OutputsKey objectives for the Negotiation phase are to negotiate the JV agreement and gain the appropriate regulatory approval.
  20. 20. © copyright Coleago 2016 Transition phase 19 Mobile Network Infrastructure Sharing 3. Coleago’s Approach Develop detailed Implementation Plan The Implementation Plan prepared during the previous phase is high level: sufficient to agree milestones and develop a budget for the JV Business Plan. Start work on the detailed Implementation Plan as soon as the partners are confident that they will proceed; at latest when the JV Agreement is ready for signature. For a smooth operational handover from the parents to the JV, it is important to define how all in-scope assets and activities will be transferred and at what point the JV takes over responsibility for meeting KPIs. Establish legal entity and initial financing Go through the necessary steps to establish the new legal entity including providing the initial financing. Lease and fit out office(s) Find suitable offices and fit out ready for staff move. Transfer or recruit/procure staff, assets and contracts In accordance with the “To-Be” design and the JV Agreement, transfer/recruit staff, transfer/procure all assets and novate/procure all third-party contracts. Implement processes and systems In accordance with the “To-Be” design and the JV Agreement, implement all processes and systems. Transform parent organisations Implement the changes to the parent organisations in accordance with the “To-Be” design and the JV Agreement. These activities will take place before or in parallel with the JV set-up activities. Start JV operation At this point the JV takes over responsibility for delivering services in accordance with the SLAs and KPIs set out in the JV Agreement. Note that there may still be transfer, recruitment, procurement and implementation activities in progress. Activities  Set up JV governance and project team (see page 20)  Develop detailed Implementation Plan  Establish legal entity and initial financing  Transfer staff, assets, contracts, etc. from parents  Transform parent organisations to work with the JV  Communicate internally and externally (see page 20)  Start JV operation Objectives  Detailed Implementation Plan  Legal entity established  Staff, assets, contracts, etc. transferred from parents  Operational JV  Post-implementation review(s) OutputsThe overall objective of this phase is to get the shared entity operational. The full benefits may take several years to deliver, which will be managed against the JV’s Business Plan.
  21. 21. © copyright Coleago 2016 Use best-practice project management and communications management throughout Benefits of sound project management The benefits of using best-practice project management are generally understood. In the case of network sharing it is particularly important in order to:  Co-ordinate the activities of numerous parties and resources across three organisations, especially during the Transition phase  Make the most effective use of the CxO team during the Strategy and Negotiation phases  Manage post-Transition benefits delivery. Having decided that network sharing is worth investigating, set it up as a formal project with a steering group, sponsor, manager, Project Plan, regular (weekly) reporting cycle, etc. Given the strategic nature of the project, it is extremely important to prepare a Security Plan and ensure that anyone joining the project understands it. Co-ordinated Transition management Only a few activities need to be co-ordinated between the prospective partners during the Strategy and Negotiation phases, namely negotiations, communications (see text at right), internal approvals and regulatory approvals. However, during the Transition phase almost all activities must be co-ordinated between the prospective partners and the JV to ensure it proceeds smoothly. The Implementation Plan (pages 18 and 19) must clearly define the split of responsibilities, handover points, etc. 20 Mobile Network Infrastructure Sharing Project management Communication is critical Network sharing may have a material impact on the Enterprise Value and therefore all external communications must be managed very carefully. Similarly internal communications are also highly sensitive because jobs may be transferred or closed. For these reasons, involve senior representatives from Human Resources (HR) and Investor Relations (IR) from the start of the project. Legal advice will probably also be required with respect to applicable employment, telecommunications and financial law. Co-ordinated communications It is important to co-ordinate communications at a fine level of detail: the wording and timing of communications must be exchanged/agreed (subject to legal constraints) between the two partners and, once it is established, the JV. Prepare and maintain a Joint Communications Plan Prepare a Communications Plan at the start of the project and maintain it through all the phases. It should cover all stakeholders and all proactive/reactive, internal/external communications activities. Prior to signing the Heads of Agreement, work with the prospective partner to extend the Communications Plan to include their stakeholders and communications activities, i.e., a Joint Plan. Key milestones for internal and external communications are:  Heads of Agreement signature  JV Agreement signature  JV Agreement completion following regulatory approval and DD  JV operational – usually an internal communication only. Communications management 3. Coleago’s Approach Be clear about the split of responsibilities between the partners and the JV. Ensure all activities are well co- ordinated, particularly during Transition.
  22. 22. © copyright Coleago 2016 Indicative project schedule 21 Mobile Network Infrastructure Sharing 3. Coleago’s Approach Month 1 2 3 4 5 6 7 8 9 10 11 12 15 Strategic analysis Business case Partner engagement Regulatory approval “To-Be” design Agt. negotiation Due diligence Plan Transition Typically, it takes between 9 and 15 months to get the JV operational. The Transformation phase (not shown) may take several years to deliver all the savings. Key factors that determine the project schedule The schedule depends mainly on the following:  Scope of the sharing  Regulatory approval(s)  Need to transfer assets  Willingness/ambition of the partners. Transformation phase (not shown) The Transformation phase might be able to start in parallel with the Transition phase. In particular it should be possible to start the design work to determine exactly how to rationalise sites. During the previous phases, the teams should have worked out the optimal rate at which to undertake the transformation. In all likelihood, it may take several years to complete this phase. BC approval (go/no-go) HoA approval (go/no-go) JV approval (go/no-go) JV operational “Early” schedule “Late” schedule Milestone
  23. 23. © copyright Coleago 2016 During the last decade our consultants have built up experience across most types of sharing deals and phases. We provide a complete range of services to support or lead your project team. Coleago’s experience and services 22 4 Mobile Network Infrastructure Sharing
  24. 24. © copyright Coleago 2016 Our consultants have built up experience across most types of sharing deals and project phases Region Sharing Option Description Global All On behalf of the Communications Regulators’ Association of Southern Africa (CRASA) and the International Telecommunications Union (ITU) developed the ICT and Broadcasting Infrastructure Sharing Guidelines for the Southern African Development Community (SADC) countries (though applicable anywhere in the world). Europe All Developed this operator’s 2G, 3G and 4G technology strategy including network sharing, equipment sourcing and managed services. The project evaluated all possible sharing options and identified the two most attractive dependent on subsequent expected regulatory events. Europe Active Modelling of the active network sharing options including alternative commercial terms to help this client decide its network sharing strategy before entering into negotiations. Europe Passive (TowerCo) Carried out a market and technical analysis for the potential creation of a mobile network towers and infrastructure sharing business in a major European market. Asia Active As part of several spectrum valuation projects, evaluated the impact on Enterprise Value of different network sharing options. Africa & Asia Active For the GSMA’s Connected Society programme, developed the Infrastructure Economics Toolkit to help governments and MNOs understand the infrastructure sharing options and fiscal measures needed to provide rural/remote broadband access to 100% of the population. Europe Passive Appointed to act as the independent mediator for a passive, antennae and transmission sharing deal. Work included preparation of the joint business case and a draft heads of agreement. Middle East & Africa Active (MOCN and roaming) Provided expert support for the Business Case development and JV Agreement negotiation for a 3G and 4G MOCN network share and 2G roaming. Europe Passive (TowerCo) Analysed the passive network sharing options for this mobile operator. Working with the client’s legal and financial advisers, developed the Information Memorandum and drafted the services schedule for the Master Agreement. Europe Active Led the technical and commercial activities to develop the relevant JV Agreement schedules for a 3G active network share in a major European market. Middle East & Africa Passive (TowerCo) Technical and commercial due diligence of tower portfolios in Tanzania, Ghana, South Africa and Uganda. Reviewed the purchaser’s business plans and carried out detailed review of the site portfolio to assess attractiveness to local market demand. 23 Mobile Network Infrastructure Sharing In addition to working on every type of sharing deal for MNOs, Coleago’s consultants have also worked for regulators and the ITU to bring regulatory frameworks up to best practice. 4. Coleago’s Experience and Services
  25. 25. © copyright Coleago 2016 We provide a complete range of services to support or lead your project team Phase Service Description Strategy Business Case Internal and external analysis including “As-Is” (business plan, processes, people, assets, systems), legal and regulatory, potential partners and risks. Quantitative analysis including commercial, technical and financial modelling. Business Case and Board presentation preparation. Info. Memorandum (TowerCos) Information Memorandum preparation (with your legal or financial advisors). Evaluation process design and execution. Board presentation preparation. HoA negotiation Negotiation team training. Draft HoA (with your legal or financial advisors). Establish internal position on key terms. Lead or support negotiations. Board presentation preparation. Negotiation Regulatory support Internal briefing document preparation. Presentations/papers preparation for submission to the regulatory authorities in support of requests for approvals. “To-Be” design Design of the governance structure, process maps, RACI tables, organisation structures, high- level job descriptions, KPIs and network/OSS architectures for the JV and parent companies. Implementation Planning High-level and detailed Implementation Plans (WBS, schedule, resources and costs). JV Business Plan Commercial terms analysis (in support of negotiation). Business Case update. JV Business Plan preparation. Agreement negotiation Negotiation team training. Draft Agreement(s) (with your legal or financial advisors). Lead or support negotiations. Board presentation preparation. Due diligence Commercial and technical due diligence. Transform- ation RAN rationalisation Lead or support the site or RAN rationalisation. Any Phase Project management Project set-up: governance, Project Plan and reporting cycle. Project management of any phase including Transition. Communications support Communications planning support to your HR and IR managers. Assistance with drafting Press Releases and internal communications. Expert advice Expert advice to the Board and CxO team. Knowledge transfer to the project team. 24 Mobile Network Infrastructure Sharing Coleago can help throughout the project at all levels. Our consultants become part of your project team. Our methodology includes templates and tools based on our experience which increase the team’s efficiency and reduce risk. 4. Coleago’s Experience and Services
  26. 26. © copyright Coleago 2016 The key benefits of working with Coleago. Why Coleago? 25 Mobile Network Infrastructure Sharing 5
  27. 27. © copyright Coleago 2016 The benefits of working with Coleago Coleago’s Differentiator Overall Benefits Mobile Network Infrastructure Sharing 5. Why Coleago?  Quickly able to establish credibility and respect with all stakeholders  Confidence to challenge the team’s thinking  Project delivery is fast, efficient and accurate  Able to remain objective  Able to identify the key challenges quickly  We already know how to tackle the challenges so more time can be spent on getting the detail correct  Time is not wasted working out how to do things  The use of existing tools reduces the need for modelling and so reduces risk  More time can be spent on strategy and developing and agreeing assumptions  The management team takes ownership  Project team learns from Coleago  Project team works at maximum efficiency Network Sharing Specialists Optimised Methodology and Tools Highly Experienced Consultants Collaborative Approach  Increased confidence  Reduced risk  Increased efficiency  Value for money Project Impact 26
  28. 28. © copyright Coleago 2016 Connecting the Unconnected: Rural/Remote Broadband Initiatives Appendix A 27 Mobile Network Infrastructure Sharing A
  29. 29. © copyright Coleago 2016 Making sense of the plethora of global initiatives – public bodies UN:  2030 Sustainable Development Goals (SDGs): – Goal 9: build resilient infrastructure, promote sustainable industrialization and foster innovation – Target: Significantly increase access to information and communications technology and strive to provide universal and affordable access to the Internet in least developed countries by 2020  World Summit on the Information Society (WSIS) – Organised annually by ITU, UNESCO, UNDP and UNCTAD – Plan of Action: 12 Action Lines; C2 is Infrastructure ITU:  Connect the World: conference series focused on the implementation of the connectivity targets from the UN's World Summit on the Information Society (WSIS) and the Regional Initiatives adopted by Member States at the ITU's World Telecommunication Development Conference (WTDC) (every 4 years, last one in 2014)  Connect 2020 Agenda has four goals: – Growth – Inclusiveness: bridge the digital divide and provide broadband for all – Sustainability – Innovation ITU & UNESCO: Broadband Commission for Sustainable Development  Following adoption of the UN's SDGs in Sep 2015, the Commission was re-launched as the Broadband Commission for Sustainable Development to showcase and document the power of ICT and broadband-based technologies for sustainable development  Six focus areas: – Economy and finance – Social development – Post 2015 development agenda – Environment and climate change – Education and science – Broadband advocacy World Bank Group: Broadband Access for All  Two goals by 2030: – End extreme poverty by decreasing the percentage of people living on less than $1.90 a day to no more than 3% – Promote shared prosperity by fostering the income growth of the bottom 40% for every country  ICT sector strategy has three action areas: – Transformation – Connectivity: scaling up affordable access to broadband for all – Innovation 28 Mobile Network Infrastructure Sharing There are more than ten global initiatives with a similar objective: to “connect the unconnected” or in other words to provide broadband services in rural/remote areas to those who currently don’t have access to the Internet. Appendix A Public Bodies
  30. 30. © copyright Coleago 2016 Making sense of the plethora of global initiatives – NGOs World Economic Forum (WEF): Internet for All  WEF: – Established in 1971 as a not-for-profit foundation – Headquartered in Geneva – independent, impartial and not tied to any special interests  10 Global Challenge Initiatives, one of which is "Future of the Internet".  Consists of four projects, one of which is "Internet for All"  Objective: develop a scalable, replicable new model of public- private collaboration that accelerate internet access and adoption for the 4 billion people currently not on the internet  Two phases: – Internet for All report (2015) – Country programmes (2016 onwards) – Rwanda, Kenya, Uganda and South Sudan – Additional country programmes (up to three in total) in other regions of the world (Asia, Latin America) Alliance for Affordable Internet (A4AI)  Global coalition working to make broadband affordable for all  Currently working in six countries — Nigeria, Ghana, Mozambique, Liberia, Myanmar and the Dominican Republic — to make Internet more affordable and accessible for nearly 300 million people. In each of these countries, we’ve signed formal memoranda of understanding with the government, and have worked with a wide range of in-country stakeholders to build strong national multi-stakeholder coalitions. These national coalitions work to develop solutions tailored to local realities, and lead efforts in their country to realise more affordable access.  Research and international advocacy ONE:  International campaigning and advocacy organisation of more than 7 million people  Focused on the UN SDGs Digital Impact Alliance (DIAL):  Includes the UN Foundation, Bill & Melinda Gates Foundation, USAID, etc.  DIAL’s mission is to accelerate the collective efforts of government, industry and development organizations to realize the vision of a more inclusive digital economy for the underserved in emerging markets 29 Mobile Network Infrastructure Sharing Appendix A Non-Governmental Organisations (NGOs)
  31. 31. © copyright Coleago 2016 Making sense of the plethora of global initiatives – commercial entities GSMA:  Mobile for Development - Connected Society programme has four work streams: – Affordability – Infrastructure economics – Digital literacy – Locally-relevant content Facebook: Internet.org  Free Basics offers access to basic websites for local audiences  Connectivity Lab developing ways to make affordable internet access possible in communities around the world – Aquila unmanned aircraft  Express Wi-Fi working with carriers, ISPs and local entrepreneurs to help expand connectivity to underserved locations  Innovation Lab, an Ericsson-Facebook collaboration, helps developers understand how their apps work in different parts of the world Alphabet: Project Loon  Network of balloons traveling on the edge of space, designed to connect people in rural and remote areas, help fill coverage gaps, and bring people back online after disasters 30 Mobile Network Infrastructure Sharing Appendix A Commercial Entities
  32. 32. © copyright Coleago 2016 Network Sharing Database and Regional Indexes Appendix B 31 Mobile Network Infrastructure Sharing B
  33. 33. © copyright Coleago 2016 Network Sharing Database and Regional Indexes 32 Mobile Network Infrastructure Sharing Appendix B MNO Network Sharing Deals by Region (2001-15) Network Sharing Experience by Group (end-2015) Coleago’s Sharing Indexes by Region (end-2015) Database (charts above and tables on following pages) Coleago’s database is based on public announcements by MNOs. It includes passive and active sharing deals between MNOs and tower JVs with, or sales to, TowerCos. It excludes M&A, national roaming, transmission-only and informal or unannounced site sharing deals. Note that the “Date” column in the following tables is the date that the deal was announced. The completion date may be different. Regional Indexes (see chart at right) As the number of countries and MNOs differ considerably between regions, Coleago has developed two indexes in order to compare the status of network sharing. The “TowerCo Index” is calculated by dividing the number of sale-and-leaseback deals by the total number of MNOs in the region. The “MNO Sharing Index” is calculated by dividing the number of passive/active sharing deals by the number of MNOs and multiplying by two. In both cases, the index may exceed 100 depending on the industry structure within a country.
  34. 34. © copyright Coleago 2016 Americas (1 of 2) Country MNO1 MNO2 TowerCo or MNO3 Deal Type Date Canada Bell Mobility Telus Active (MORAN) Oct-08 Jamaica LIME América Móvil (Claro) Passive Jul-09 Canada Rogers Videotron Active (MORAN) Jul-09 Canada Rogers Manitoba Telecom Active (MORAN) Jul-09 Canada Bell Mobility SaskTel Active (MORAN) Oct-09 Chile Telefónica (Movistar) ATC TowerCo Jul-10 Colombia MIC (Tigo) ATC TowerCo Jul-11 Mexico Telefónica (Movistar) ATC TowerCo Dec-11 Chile Telefónica (Movistar) ATC TowerCo Jan-12 Brazil Telefónica (Vivo) SBA TowerCo Jan-13 Brazil Oi TIM Brasil Active (MORAN) Mar-13 Brazil Telefónica (Vivo) América Móvil (Claro) Active (MORAN) Mar-13 Colombia Telefónica (Movistar) MIC (Tigo) Active (MORAN) Aug-13 Brazil NII ATC TowerCo Aug-13 Mexico AT&T [formerly Nextel] ATC TowerCo Aug-13 USA AT&T Crown Castle TowerCo Oct-13 Brazil Oi SBA TowerCo Dec-13 Brazil Oi SBA TowerCo Jun-14 Venezuela Movilnet Telefónica (Movistar) Digitel Passive Oct-14 Brazil TIM Brasil ATC TowerCo Nov-14 33 Mobile Network Infrastructure Sharing The network sharing picture in the Americas has been dominated by TowerCo deals (over 70%) to the extent that the region is on a par with the MEA region on the TowerCo Index. However it is still early days as these deals have only taken place in five countries (Brazil, Chile, Colombia, Mexico and USA). An even greater opportunity is active sharing between MNOs where the only deals to date have been in Canada, Colombia and Brazil. Appendix B
  35. 35. © copyright Coleago 2016 Americas (2 of 2) Country MNO1 MNO2 TowerCo or MNO3 Deal Type Date USA US Cellular Vertical Bridge Holdings TowerCo Dec-14 USA nTelos Wireless Grain Management TowerCo Jan-15 USA Verizon ATC TowerCo Feb-15 34 Mobile Network Infrastructure Sharing Appendix B
  36. 36. © copyright Coleago 2016 Europe (1 of 2) Country MNO1 MNO2 TowerCo or MNO3 Deal Type Date Sweden TeliaSonera Tele2 Active (MOCN) Jan-01 Sweden Telenor Sweden Hutchison (3) Active (MOCN) Apr-01 Spain Vodafone Spain Orange Spain Active (MORAN) Nov-06 Italy Vodafone Italia TIM Passive Nov-07 United Kingdom T-Mobile UK [now EE] Hutchison (3) Active (MORAN) Dec-07 Germany Vodafone Germany Telefónica (O2 Germany) Passive Mar-09 Spain Vodafone Spain Telefónica (Movistar) Passive Mar-09 Ireland Vodafone Ireland Telefónica O2 Ireland [now Hutchison (3)] Passive Mar-09 Sweden Tele2 Telenor Sweden Active (MOCN) Apr-09 Italy TIM Hutchison (3) Passive Jul-09 Belgium Orange (Mobistar) KPN (BASE) Passive Oct-09 Czech Republic Telefónica O2 [now O2 Czech Republic] T-Mobile CR Active (MORAN) Feb-11 Ireland Hutchison (3) [formerly Telefónica O2 Ireland] Eircom (Meteor) Passive Apr-11 Denmark TeliaSonera Denmark Telenor Denmark Active (MOCN) Jun-11 Poland T-Mobile (PTC) PTK Centertel [now Orange Polska] Active (MORAN) Jul-11 Russia Rostelecom MTS Passive Feb-12 United Kingdom Vodafone UK Telefónica (O2 UK) Active (MORAN) Jun-12 35 Mobile Network Infrastructure Sharing Europe has gone the furthest in terms of “depth of sharing” with 17 active (MORAN and MOCN) sharing deals to date but has been the laggard when it comes to TowerCo deals. With no sharing of any form in half of Europe, there is still some way to go. Appendix B
  37. 37. © copyright Coleago 2016 Europe (2 of 2) Country MNO1 MNO2 TowerCo or MNO3 Deal Type Date Ireland Vodafone Ireland Hutchison (3) Passive Jul-12 France Bouygues Antin IP TowerCo Nov-12 Netherlands KPN Protelindo TowerCo Nov-12 Greece Vodafone Greece Wind Hellas Active (MORAN) Jun-13 Romania Vodafone Orange Active (MORAN) Aug-13 Spain Telefónica (Movistar) TeliaSonera (Yoigo) Abertis TowerCo Aug-13 Netherlands T-Mobile Tele2 Passive Sep-13 Iceland Fjarskipti (Vodafone) Nova Active (MOCN) Nov-13 France SFR Bouygues Active (MORAN) Jan-14 Finland TeliaSonera Finland DNA Active (MOCN) Aug-14 Russia Vimpelcom MTS Active (MORAN) Dec-14 Hungary T-Mobile (Magyar Telekom) Telenor Active (MORAN) Feb-15 Italy Vimplecom (Wind) Abertis TowerCo Mar-15 Finland Ukko Mobile Digita Passive Dec-15 36 Mobile Network Infrastructure Sharing Appendix B
  38. 38. © copyright Coleago 2016 Middle East & Africa (1 of 2) Country MNO1 MNO2 TowerCo or MNO3 Deal Type Date Iran MCCI Irancell Taliya Passive Jan-07 Qatar Qtel [now Ooredoo] Vodafone Qatar Passive Mar-09 Ghana MIC (Tigo) Helios TowerCo Jan-10 South Africa Cell C ATC TowerCo Nov-10 Ghana MTN ATC TowerCo Dec-10 Nigeria Starcomms SPAN TowerCo Dec-10 Tanzania MIC (Tigo) Helios TowerCo Dec-10 DRC MIC (Tigo) Helios TowerCo Dec-10 Uganda MTN Uganda ATC TowerCo Dec-11 Uganda Orange Eaton TowerCo Mar-12 Uganda Warid [now Airtel] Eaton TowerCo Mar-12 Côte d'Ivoire MTN IHS Holding TowerCo Oct-12 Cameroon MTN IHS Holding TowerCo Oct-12 Rwanda Rwanda Development Board KT Corp Open Access Mar-13 Tanzania MIC (Tigo) Vodafone (Vodacom) Helios TowerCo Jul-13 Israel Partner (Orange) Golan Passive Oct-13 Israel Partner (Orange) HOT Mobile Active (MOCN) Nov-13 Rwanda MTN IHS Holding TowerCo Dec-13 Zambia MTN IHS Holding TowerCo Dec-13 37 Mobile Network Infrastructure Sharing Africa leads the world in TowerCo deals; the regional Index being pulled down from 17 to 13 because of the lack of deals in the Middle East. Three multinational operators, Millicom (Tigo), MTN, and Airtel, account for more than 80% of the deals. Appendix B
  39. 39. © copyright Coleago 2016 Middle East & Africa (2 of 2) Country MNO1 MNO2 TowerCo or MNO3 Deal Type Date DRC Airtel Helios TowerCo Jul-14 Republic of Congo Airtel Helios TowerCo Jul-14 Nigeria Etisalat Nigeria IHS Holding TowerCo Aug-14 Nigeria MTN Nigeria IHS Holding TowerCo Sep-14 Israel Cellcom Golan Active (MOCN) Sep-14 Israel Cellcom Pelephone Passive Sep-14 Egypt Orange (MobiNil) Eaton TowerCo Nov-14 Nigeria Airtel ATC TowerCo Nov-14 Rwanda Airtel IHS Holding TowerCo Dec-14 Zambia Airtel IHS Holding TowerCo Dec-14 Tunisia Ooredoo Tunisia Tunisie Telecom Active (MORAN) Oct-15 Burkina Faso Airtel Eaton TowerCo Oct-15 38 Mobile Network Infrastructure Sharing Similar to the Americas, there are still more than 30 African countries without TowerCos and an even bigger opportunity for active sharing between MNOs. With the exception of Israel, Middle Eastern operators have yet to embark on the TowerCo or network sharing journey. Appendix B
  40. 40. © copyright Coleago 2016 Asia Pacific (1 of 2) Country MNO1 MNO2 TowerCo or MNO3 Deal Type Date Australia Vodafone Hutchison Australia Optus Active (MORAN) Aug-04 Pakistan PTCL (Ufone) Telenor Pakistan Passive Jul-07 India Airtel (Bharti Infratel) Essar [now Vodafone] Idea Cellular Passive Dec-07 Indonesia Axiata (XL) Hutchison (3) Passive Dec-07 New Zealand Vodafone NZ NZ Communications Passive Oct-08 Vietnam Viettel [formerly EVN Telecom] Hanoi Telecom (Vietnamobile) Active (MOCN) Apr-09 India Aircel Datacom Solutions [now Videocon] Passive Sep-09 India BSNL Tata Teleservices Passive Oct-09 India BSNL Aircel Passive Oct-09 Bangladesh Axiata (Robi) Warid [now Airtel] Passive Oct-09 India BSNL Datacom Solutions [now Videocon] Passive Oct-09 India BSNL MTS (SSTL) Passive Nov-09 Bangladesh Vimpelcom (banglalink) Telenor (Grameenphone) Passive Feb-10 Bangladesh Axiata (Robi) Telenor (Grameenphone) Passive Feb-10 India Essar [now Vodafone] ATC TowerCo Feb-10 Bangladesh Warid [now Airtel] Citycell Passive Apr-10 Hong Kong PCCW Hutchison (3) Active (MOCN) Oct-10 Bangladesh Warid [now Airtel] Telenor (Grameenphone) Passive Nov-10 39 Mobile Network Infrastructure Sharing Asia Pacific stands out for its passive sharing between MNOs but the Index is exaggerated by the multiplicity of deals in Bangladesh and India. Appendix B
  41. 41. © copyright Coleago 2016 Asia Pacific (2 of 2) Country MNO1 MNO2 TowerCo or MNO3 Deal Type Date Malaysia Celcom DiGi Passive Jan-11 Pakistan PTCL (Ufone) Vimpelcom (Mobilink) Passive Apr-11 Pakistan Telenor Pakistan Vimpelcom (Mobilink) Passive May-11 Malaysia Maxis U Mobile Active (MORAN) Oct-11 Thailand AIS TOT Passive Jan-12 Malaysia Maxis REDTone Active (MOCN) Jul-12 Bangladesh Axiata (Robi) Teletalk Passive Jan-13 Azerbaijan Bakcell Azerfon Active (MOCN) May-13 India RCOM Reliance Jio Passive Jun-13 Malaysia Celcom Puncak Semangat (Altel) Active (MOCN) Jul-13 India Airtel Reliance Jio Passive Dec-13 Bangladesh Airtel (formerly Warid) Teletalk Passive Feb-14 China China Mobile China Telecom China Unicom Passive Jul-14 Papua New Guinea Telikom PNG bmobile Active (MORAN) Aug-14 India BSNL Reliance Jio Passive Aug-14 Indonesia Axiata (XL) Solusi Tunas Pratama (STP) TowerCo Oct-14 Indonesia Telkom Indonesia Tower Bersama Infrastructure (TBI) TowerCo Oct-14 Pakistan Warid TowerShare TowerCo Apr-15 Thailand AIS DTAC Passive Aug-15 40 Mobile Network Infrastructure Sharing Although the TowerCo Index is as low as Europe, the segment is expected to grow rapidly with a number of operators such as Axiata (Malaysia, Bangladesh, etc.) establishing their own captive tower businesses and TowerCos such as American Tower and Viom expanding into India and Myanmar respectively. Similar to the Americas and MEA, active sharing still leaves huge potential. Appendix B
  42. 42. © copyright Coleago 2016 Tower Companies Appendix C 41 Mobile Network Infrastructure Sharing C
  43. 43. © copyright Coleago 2016 Multinational tower companies 42 Mobile Network Infrastructure Sharing Appendix C Name HQ Shareholders Towers Markets American Tower US Publicly quoted 143,000 Brazil, Chile, Colombia, Costa Rica, Mexico, Peru, USA, Germany, Ghana, Nigeria, South Africa, Uganda, India Cellnex Telecom ES Publicly quoted 15,000 Italy and Spain e.co MY Private. Axiata 16,000 Bangladesh, Cambodia, Malaysia, Myanmar and Sri Lanka Eaton Towers GB Private 5,000 Burkina Faso, Egypt, Ghana, Kenya, Malawi, Niger, South Africa and Uganda Helios Towers Africa GB Private. Key investors: Albright Capital, IFC, Quantum. 5,500 Chad, Congo, DRC, Ghana and Tanzania IHS Group GB Private. Key investors: Goldman Sachs, IFC, ECP, Investec. 23,300 Cameroon, Côte d'Ivoire, Nigeria, Rwanda, Zambia SMN (Protelindo) ID Publicly quoted 12,200 Indonesia and Netherlands Note that there are numerous tower companies who only have a presence in one market. Some of these companies, e.g., Arqiva, Bharti Infratel, Crown Castle, Indus Towers, TDF, Viom, etc., have large tower portfolios and in some cases have expressed an ambition to expand internationally. The number of towers is correct as of end-2015 and includes both owned and managed sites.
  44. 44. © copyright Coleago 2016 Tower/site sharing through third-party tower companies Business rationale for tower companies Saddled with the high cost of 3G licences and the cost of 3G build out, many mobile operators sought to release capital from the sale of their tower assets. This also had advantages from the stock market perspectives since the telecoms business and the tower business were valued on a different basis. Mobile telecoms operators are deemed to be growth stocks whereas the tower business is based on predictable, stable cash flow. The communication tower or mast business is a large business dominated by infrastructure and or real estate orientated companies as opposed to technology companies. For example Crown Castle International Inc. and American Tower Corp. are the dominant independent tower companies in the USA. More recently, tower companies also moved into the transmission space, benefitting from the growth in demand for backhaul as a result of increase mobile data traffic. The features that make the tower business attractive to investors are:  Restrictions in granting building permits may create a local monopoly. It is this which also makes it risky for operators to sell their tower assets to a dominant supplier.  Long-term contracts are the norm.  High switching costs result in high renewal rates.  Most of the OpEx is fixed.  The combination of predictable revenue and OpEx results in a steady cash flow.  Tower companies have low borrowing costs because they can offer towers as collateral. Renting tower space The rent or lease prices mobile network operators have to pay to tower companies depend on a number of factors.  Location and availability of alternatives are a significant issue. As with the real estate business what matters is location, location, location.  In some cases operators share in the construction cost in exchange for a rent reduction.  Volume discounts are common as are discounts for a long term commitment. The risk of creating a tower/site monopoly In countries where operators have sold towers and rooftop sites to third-party operators, they have effectively created a monopoly with control over an essential facility. In many countries, it is difficult or impossible to build new sites as site build authorisations are refused. This means the only option is to go onto an existing site owned by a site or tower company. In some markets independent site companies control virtually all sites in a given area. This means the mobile operators become price takers in a monopoly market. For example in the UK, this has had some negative impact on operating costs and led to litigation. 43 Appendix C Some of the early tower sharing deals were driven by the desire to release capital by selling assets to tower companies. However, there is the risk of creating a tower monopoly Mobile Network Infrastructure Sharing
  45. 45. © copyright Coleago 2016 About Coleago Appendix D 44 Mobile Network Infrastructure Sharing D
  46. 46. © copyright Coleago 2016 A leading boutique telecommunications consulting and training firm Operators and regulators Telecoms operators around the world trust Coleago to provide insight and advice on key strategic and commercial issues through our broad range of consulting and training services. Experience-based consulting approach We do not use inexperienced associates or analysts – all our consultants have a minimum of 10 years experience and most have over 15 years, often at board level in operational businesses. Our insight and advice is therefore based on practical experience and proven processes and methodologies developed over many years. Clients can be confident that their project will be delivered by Partner and Senior Manager level consultants from start to finish and our solutions and recommendations will be credible, relevant, realistic and practical. Developed and developing market experience Coleago has worked with clients in developed markets and also in some of the most challenging emerging markets including the Yemen and the Sudan and we have launched and operated GSM businesses in countries such as Algeria. Small, effective teams Our consultants are highly experienced, multi-skilled and have extensive project management experience. This allows Coleago to deploy smaller teams as we do not require the hierarchy of traditional consultancies to manage large teams of juniors. Clients find our small teams easier to work with and integrate into their own project teams. Exceptional value By eliminating many of the overheads of traditional firms we are able to offer end-to-end partner level consulting at fee rates that provide exceptional value. 45 Mobile Network Infrastructure Sharing Appendix D Based in the UK Coleago provides consulting and training services to global and regional telecoms, media and technology players Advice covering a broad range of technologies We have advised clients on wireless, fixed, cable, satellite and fibre based technologies. We have specialist expertise in spectrum valuations and spectrum auctions have participated in more than 50 awards since 1994. Media and technology experience We have developed strategies and business plans for media companies, TV channels and web based businesses as well as technology companies. Innovative training services Coleago has developed a range of training and management development programmes, including a War Game (business simulation) Junior Consultant Senior Consultant Manager Senior Managers Partner Analyst Traditional Consulting Firm Model
  47. 47. © copyright Coleago 2016 Contacts Appendix E 46 Mobile Network Infrastructure Sharing E
  48. 48. © copyright Coleago 2016 Contacts 47 Mobile Network Infrastructure Sharing Appendix E Stefan Zehle Tel: +44 7974 356 258 stefan.zehle@coleago.com CEO Graham Friend Tel: +41 79 855 1354 graham.friend@coleago.com Managing Director Further information: www.coleago.com Scott McKenzie Tel: +44 7825 294 576 scott.mckenzie@coleago.com Director Chris Buist Tel: +43 664 352 1068 chris.buist@coleago.com Director

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