Network sharing: Is this the new norm for telcos?

Network infrastructure is the backbone of every telecom service provider and requires significant capital expenditure. Moreover, investments in 5G and the growing demand for data services have further pressured telcos to continuously maintain high levels of CAPEX, varying between 10 to 20 percent of revenues. This challenge to maximize ROI is what drives every telco, especially in an era of declining ARPUs for connectivity services.

The network infrastructure includes electronic components and passive elements, such as physical sites and towers, which are required to operate the network. While subscribers do not directly comprehend the infrastructure’s configuration, the performance (throughput and latency) of the entire mobile network infrastructure determines the user experience. This makes network infrastructure one of the most critical assets for telcos. Therefore, to reduce infrastructure expenses and better serve customers, telcos are moving ahead with sharing their resources with other telcos.

Exhibit 1
Network Sharing representation

Source: twimbit analysis

Approaches towards Network Sharing

Approach 1

The ability to accelerate the commercial rollout and demand a price premium are factors that can drive market leaders to network sharing. For example, these factors can act as viable reasons for two market leaders in a four-player market to share a superior network to polarise the market.

In China, leading telecom giants, China Mobile and China Telecom, solidify this approach even further with their network sharing agreement (NSA) to provide a superior network experience. Australia is also on top of the game, with market leaders Telstra and TPG Telecom having signed an NSA to compete with Optus (the second biggest player).

Approach 2

An alternative approach is to launch a single 5G wholesale network, one which all the market participants can leverage. Entry to the market is controlled through spectrum ownership, and competition for services would remain unchanged.

Malaysia established Digital Nasional Berhad (DNB), a new Special Purpose Vehicle (SPV) entity under the Ministry of Finance, in March 2021 to roll out 5G. Instead of auctioning 5G spectrum to private companies, DNB will own the spectrum licenses and build out the physical network infrastructure, offering wholesale network services.

Types of network sharing

Passive network sharing

Exhibit 2
Passive Network Sharing representation

Source: twimbit analysis

Active network sharing

Exhibit 3
Active Network Sharing representation

Source: twimbit analysis

Active network sharing is further divided into three types:

  1. MOCN (multi-operator core network) sharing
  2. MORAN (multi-operator radio access network) sharing
  3. CN (core network) sharing

Exhibit 4
Comparison between types of network sharing

Source: twimbit analysis

In the United States, telcos have yet to opt for network-sharing arrangements. For them, coverage and quality of service have been key points of differentiation driving the marketing strategies.

Active sharing allows telcos to save more than 40 percent in network infrastructure deployment costs while saving an additional 18 to 35 percent on 5G deployment.

MORAN is the most preferred way of network sharing among telcos. This is because control over the base station is an added advantage for telcos over all other modes of network sharing. Additionally, less regulatory approval is needed in comparison to MOCN & CN.

Network sharing agreements

Exhibit 5
Network sharing agreements

Source: twimbit analysis

Impact of network sharing

Network sharing can help telcos achieve significant savings on implementation expenditures (IMPEX), capital expenditures (CAPEX), and operating expenditures (OPEX). Additionally, telcos can also reduce their total cost of ownership by up to 30% with network sharing while improving network quality.

China Telecom and China Unicom signed an NSA to build and manage 5G RAN.

  1. China Unicom will build 60 percent of its base stations, while China Telecom will build 40 percent of its base stations in Beijing, Tianjin, Zhengzhou, Qingdao, and Shijiazhuang.
  2. China Telecom will build 60 percent of its base stations, while China Unicom will build 40 percent of its base stations in Shanghai, Chongqing, Guangzhou, Shenzhen, Hangzhou, Nanjing, Suzhou, Changsha, Wuhan, and Chengdu.
  3. The NSA will help save a total joint CAPEX of US$ 33 billion and US$ 3.1 billion in OPEX over the years and reduce carbon emissions by 6 million tonnes.
  4. The NSA will also lead to a total CAPEX savings of US$ 16 billion and OPEX reduction at around US$ 1.6 billion in 2021.

Exhibit 6
CAPEX and OPEX reduction, 2021

Source: twimbit analysis

The lower CAPEX spending helps customers pay less for innovative technology as it reduces the risk of price hikes from telcos, which look to recoup their investments due to the excessive cost of network infrastructure.

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