Economics of Network Sharing
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Transcript of Economics of Network Sharing
T-Mobile International AG & Co. KG Confidential and ProprietaryAll rights reserved. No part of this report may be reproduced in any material form
without the written permission of the copyright owner.
Economics ofNetwork Sharing
Network Sharing Strategy ForumLondon, September 24th, 2008
Kim Kyllesbech LarsenNetwork Economics, T-Mobile International
2
Why share your network?
OPEX Saving (ca. 30%)Capex prevention (>30%)
Personnel efficiency
Network effic
iencyEnvironmental Improvements
Customer benefits
OPEX prevention
Operational efficiency
Less spectrum demand
Extended coverage
“cheap” M&A alternative
T-Mobile International AG & Co. KG Confidential and ProprietaryAll rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner.
Rollout speed
3
A sharing anecdote.
Initial discussion with Orange NL started in mid ‘01.
JV operational from mid ‘02 to ‘04.- Common 3G rollout organization (Opex and Capex).
- Common pool of GSM locations for co-locating 3G Equipment (Opex).
- Common Site Acquisition & Site Build (Capex/Opex).
- Shared ancillary & transmission (Capex).
JV closed down in YE ‘04.- Key expertise remained in the respective organizations (staff resistance).
- Differences in rollout strategies (divergence from original expressed strategies).
- TMNL’s policy not to use battery backup for UMTS nodes made ancillary sharing redundant.
- Detailed analysis showed utilizing own existing GSM infrastructure (standalone) for 3G co-location provided lower cost and invest than sharing with another operator.
Oct ‘07 T-Mobile acquire Orange; network consolidation started.
3G-sharing in The Netherlands – T-Mobile – Orange joint venture. The Financials for network sharing was reasonable, however the case for closing down was better.
T-Mobile International AG & Co. KG Confidential and ProprietaryAll rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner.
4
Stages of sharing benefits?
Rollout Phase Steady State Renewal /
Obsolescence
Capex savings Opex prevention
Little Capex benefits Opex savings Significant write-off Re-structuring cost
Capex savings Opex savings Opex prevention Minor write-off Re-structuring cost
< 5 years 4 – 8 years
UMTS LTE
> 7 years
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GSM/UMTS
5
Network sharing – opportunity.
Where are we today?- Operators have built national radio infrastructures in parallel.
- Multiple cost …
Why?- Competition – coverage was a key market differentiator
- Regulatory – the licence required it
Now!- Coverage – less of a differentiator.
- Services – the real differentiator.
- Cost is now a key driver!!
T-Mobile International AG & Co. KG Confidential and ProprietaryAll rights reserved. No part of this report may be reproduced in any material form without the written permission of the copyright owner.
6
Network sharing – the pressure.
Cost?- Around 55% of the Operators Network Opex is in the RAN infrastructure.
- Sharing reduces Opex pressure.
- Sharing reduces Capex pressure. Upgrade costs – 2G refresh, mast upgrades.
Replacement costs – LTE.
An opportunity to improve Profitability
But!- Technical problems may raise marketing, service and billing issues
- Regulatory requirements - separate operating frequencies
However- Sharing would help to reduce the amount of base stations
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7
10,0009,0008,0007,0006,0005,0004,0003,0002,0001,0000
Sites
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Cum
ulat
ed R
even
ue
The ugly tail.
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Half the mobile network captures ca.10% of the revenue – Top 10% of the sites captures 50% (or more) of the revenue.
50% revenue ≈ 1,000 sites
Low profitability sites
30% Top Sites ≈ 80% revenue
Remaining 5,000 sites takesless than 10% revenue
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Network Sharing GSM, UMTS, LTE and WiMax will provide significant Opex synergies in the form of sustainable savings as well as cost prevention.
Opex synergies by sharing.
Cost Distribution Synergy Potential Overall Cost Impact1
PersonnelTransmissionSite LeasesMaintenance & RepairServicesOther Costs
Cost TypeSynergies
1 Expected impact relative to relevant cost structure.2 Mobile Network with > 80% Micro waves in Backhaul , 3 Mobile Network with more than 90% Leased lines, 4 Mobile Network size dependent as well as slightly dependent on macro-economical factors; 5 Varies with network size and macro-economical factors, 6
Services relates to 3rd party services. Depends on degree of outsourcing and, 7 around 50% relates to power consumption and range is driven by network size.
= Low
= High
Total Synergy -
10% to 15%
5% 2 to 24% 3
35% to 45% 4
5% to 15% 5
10% -20% 6 5% to 15% 7
50% to 60%
T-Mobile International AG & Co. KG Confidential and Proprietary
All rights reserved. No part of this report may be reproduced in any material form without
the written permission of the copyright owner.
Shared by two
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Characteristics of 1-only operator with MVNO.
Legend:TRX: Transmitter/Receiver (RF-part)PA: Power AmplifierATM: Transmission switchOMC-R: Operation and Maintenance Center Radio networkChannel Elements: Data processors for different servicesRNC: Radio Network Controller controlling the Node-Bs
ChannelElements
TRXOp 1
Individual Power, Airco, Cabinet, Alarm,…
PAOp 1
XXXX
RNC
Node-BOp 1 (1 of 3 sectors)
CoreOp 1
OMC-ROp 1
AT
MT
ran
sm.Iub
Since prior to UMTS deployment all possible (and impossible) sharing scenarios have been discussed and studied in detail.
CoreMVNO
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10
Characteristics of Node-B (RAN) sharing (1/2).
Node-BNode-B
Shared
RNC
CoreOp 2
CoreOp 1
Shared Iub SharedChannelElements
TRXOp 2
TRXOp 1
Shared PartsPower, Airco, Cabinet, Alarm,…
AT
M t
rans
m.
Configuration exampleNote other transmission schemes could be deployed
XXXX
E.g. RNC at anyMSC location
XXXX
Shared
RNC
Iur
Node-B (1 of 3 sectors)
Node-B
PAOp 2
PAOp 1
Legend: TRX: Transmitter/Receiver (RF-part), PA: Power Amplifier, ATM: transmission switch, OMC-R: Operation and Maintenance Center Radio network, Channel Elements: data processors for different services, RNC: Radio Network Controller controlling an amount of Node-Bs.
OMC-Rshared
OMC-ROp 1
OMC-ROp 2
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Characteristics of Node-B (RAN) sharing (2/2).
Node-BNode-B
Shared
RNC
CoreOp 2
CoreOp 1
Shared Iub SharedChannelElements
TRXOp 2
TRXOp 1
Shared PartsPower, Airco, Cabinet, Alarm,…
AT
M t
rans
m.
Configuration exampleNote other transmission schemes could be deployed
XXXXE.g. RNC at any
MSC location
XXXX
Shared
RNC
Iur
Node-B (1 of 3 sectors)
Node-B
PAOp 1 & 2
Legend: TRX: Transmitter/Receiver (RF-part), PA: Power Amplifier, ATM: transmission switch, OMC-R: Operation and Maintenance Center Radio network, Channel Elements: data processors for different services, RNC: Radio Network Controller controlling an amount of Node-Bs.
OMC-Rshared
OMC-ROp 1
OMC-ROp 2
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More than 50% of all Network Related TCO comes from site-related operational and capital expenses.
Total cost of ownership synergies.
Site Rental
Energy
Operate & Maintain
Leased Transmission
Resources
Site-related Opex
Radio Node
Ancillary
Transmission
Build /Civil Works
Resources
Site-related Capex Opex+
Annualized Capex
=TCO
= Low = HighSynergy Potential
Antenna
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-
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Annual RAN Opex (€m) 335Operator B % of total RAN Cost Opex %Saving Saving
Personnel Costs 18% 60 40% 24Transmission 4% 15 0% 0
Site Rental 54% 180 40% 72Services 12% 40 40% 16
Other Costs 12% 40 20% 8Total 335 36% 120
Annual RAN Opex (€m) 400Operator A % of total RAN Cost Opex %Saving Saving
Personnel Costs 15% 60 40% 24Transmission 20% 80 0% 0
Site Rental 45% 180 40% 72Services 10% 40 40% 16
Other Costs 10% 40 20% 8Total 400 30% 120
Network sharing example– cost reduction.2 Operators with each 10,000 site locations intending to share 80% of existing pool and decommission 8,000 site locations.
A is leased line based
B is Micro Wave based
120
30
90……. 120
Yr1 Yr2 Yr3 Yr10
Opex Synergy per Operator
“Easily” between 30% and 36%(relevant) Opex saving
by RAN sharing
(In m€)
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14
Network sharing example– uncertainties.…Whilst the saving potential is substantial keep in mind:
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20% Personnel Costs
60% Site Rental
13% Services 7% Other Costs
- Landlord accepts a cut in lease income, i.e., two operators under same lease.
- Lease cost asymmetry, e.g., 1 party has GSM & UMTS, the other only UMTS.
- Labor laws.- Staff resistance.- Loss of key
resources.- JV overhead.
- Termination of existing contracts.
- Supplier mismatch.- Internal contract
synergies being violated.
- Legal aspects of contract sharing.
- Complexity.
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Network sharing example– restructuring cost.Decommission 8,000 site locations and sharing 10,000 sites gives a steady-state Opex saving of €120M per operator - But there is no such thing as a free meal:
60
Remove & Restore
Leasetermination
70
Personnelcost
25
Othercost
15
AssetWrite-off
>100
>270oneoff
120
(In m€)
In cost-reduction scenarios count onat least twice the annual Opex savings
in restructuring cost.
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annualsaving
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….and the real world is not symmetric.
Operator A Operator B40% market share 20% market share
Cover 98% of country Cover less than 50% of country
Incumbent status Greenfield / new-entrant status
Leased-line based backhaul MW-based backhaul
Relative old equipment New equipment
Multiple suppliers No supplier match
Less efficient More efficient
GSM & UMTS UMTS only 15,000 locations5,000 locations
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17
80 – 600+ Mbps
40 -300E1
LTE
Backhaul sharing – mobile broadband challenge
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<2 E1
GSMGPRS
4 Mbps<4 E1
EDGE
8 Mbps <6E1
R99
12 Mbps
1st gen.
HSPA
<12E1
24 Mbps
2nd gen.
<20E1
40 Mbps
High-Capacity Microwave radios (100Mbps (today) – 1 Gbps with mm-wave band)Leased Line
Fiber-to-Premise (Base Station/Hub)
………
Sharing benefit
HighLow
Note: E1 = 2.048 MbpsAbove display is for illustration only purposes.
18
Network sharing – summary.
Network Sharing can significantly reduce Opex costs and capital requirements.
High restructuring costs and write-offs may not be (financially) acceptable (short to medium term).
Mobile broadband (HSPA, LTE,..) requirements may force network sharing thereby reducing backhaul investments.
Changed mindset by the operators and regulators is required (i.e., network not a competitive differentiator).
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19
Why not to share your network?
Strategic lock-inDeal complexity
Asymmetric benefits High restructuring cost
Coordination overhead
Competitive disadvantages
Integration complexity
Growth limitationsAsset write-off
Regulatory scrutiny
Loss of independence
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Staff resistance
Dis-entanglementvery complex