There’s no doubt what the big mobile networks story of the week is – the news that Vodafone and Telefonica will work on active network sharing for their 2G, 3G and LTE networks. They will be rolling out a shared network grid, with shared radio access elements and shared backhaul. This deepens their network sharing activities fairly steeply from their current Cornerstone partnership, which was a common venture acquiring sites and passive equipment (masts, power etc) for Vodafone and Telefonica’s joint use.
The deal will step up the number of co-owned sites from 4,000 to 18,500. Incidentally, that’s almost the exact number of sites Everything Everywhere has settled on in its network integration. The difference is that EE brought that down from a legacy 28,000 T-Mobile/Orange sites, whereas Vodafone and Telefonica said that they would only be consolidating around 10% of their total sites to reach that combine 18,500 figure. (The difference between 900MHz and 1800MHz spectrum, perhaps?)
The sites will not be co-managed, though, as Telefonica will take responsibility for half the network, and Vodafone the other half, with the split being made on a geographic basis. The company CEOs confirmed that each operator will run its own area independently, commissioning its own RFQs and procurement processes and so on. The companies portrayed this as one grid, supporting two networks. It looks to me more like two contiguous networks being managed virtually as one. Not that it makes a great deal of difference to users, although it will make a difference to the antenna, base station and backhaul suppliers answering the tenders.
The operators said that the sharing deal is not just about consolidation and cost reduction, but about being able to use their combined strength to extend coverage in a way that would not have been economical to do so acting alone. They said that they would be able to achieve 98% indoor coverage by 2015, ahead of Ofcom’s requirement that one 800MHz licence should come with mandatory coverage of 98% by 2017.
Having invoked the LTE auction, though, the operators were keen not to actually step any further – lest they gave the impression that there was any commercial collusion going on.
But naturally the questions were asked – what does this mean in terms of LTE entry, and the auction process, with the two operators’ interests seemingly closely aligned? The operators insisted that the only thing specifically relevant to LTE is that is introduction provided the natural point for a RAN refresh. It was that RAN refresh, and specifically the move to multiRAN base stations, that opened up the path for deeper network sharing.
The other question is – where does this leave Three? EE wants sub 1GHz spectrum. Three is pretty much guaranteed to have some, unless something changes in Ofcom’s thinking between now and July. Telefonica and Vodafone’s Grid is clearly targeted at 800MHz LTE, sitting closely to its 900MHz coverage. So EE will be faced with a dilemma – bid competively for 800MHz or do a trade with Three. As for Three, will it be able to roll out a separate, third LTE network at 800MHz and some 2.6GHz, and potentially some 1800MHz specrtum, and be competitive in the face of the enhanced economies of scale Vodaone and Telefonica and EE are leveraging? Ofcom is committed to four national wholesale LTE providers, don’t forget. Would a shared Voda-Telef grid pass muster as two wholesale networks?
Aside from such hypotheticals, there were other voices urging caution, based on past experiences of good sharing intentions waning in the face of commercial and cultural reality. One such came from Bengt Nordström, CEO, Northstream, who said that although this is a smart move, such a deal has proved very challenging for other operators.
“This is a reflection of the economic realities that operators face in building and evolving their networks. The industry needs consolidation, and this is another move in that direction.
“And it’s a smart move. Sites are expensive, and that’s clearly at the core of this arrangement. What’s really unclear from the announcement is the intentions for the RAN – will they be sharing basestations? This is one of the important cost items in equipment so sharing can mean big savings.
“But I have concerns about the operators’ appreciation of how challenging this is over the long term.
“A joint venture of this kind requires complete alignment of strategy – including coverage, capacity and services. And that alignment has to last through many leadership teams. A ten or 20 year perspective must be taken – can Telefonica and Vodafone be confident that they will manage to remain aligned over such a period of time when the rate of change in telecom is faster than ever?
“In Sweden, Telia and Tele2 undertook a network sharing programme over ten years ago. They were aligned at the start, but as strategies and priorities diverged – even slightly – the value of the joint venture was reduced. Now, that network sharing programme provides basic maintenance service for the two groups, but it isn’t the strategic advantage that it could have been.
“Telefonica and Vodafone must be wary of the long term challenge presented by such an interdependent relationship.”
Nordstrom’s mistrust of situation was given another echo by Neil Coleman, Director of Marketing at Actix. Unsurprisingly, as a supplier of monitoring solutions, Coleman was urging the use of monitoring. But the issues of trust and transparency across the network are clearly relevant, whether you assure that trust with Actix products or not.
“What is key for this agreement to work is for both operators to establish a strong trust through a transparent, unambiguous view of network performance and customer experience – helping them make effective joint decisions. We’ve seen many sharing, outsourcing relationships run into problems due a lack of transparency and trust between the parties involved so those working on the shared sites will need to get out of the mentality of viewing each other as the competition.
"This can and should be good news for subscribers on both networks, but it needs to be carefully managed to ensure no customer impacting service disruption takes place during the transition. In similar 'live network' projects, we've seen drops in network performance lasting over two weeks – if your customers notice this then you're in trouble. Both Vodafone and O2 will need to constantly monitor their networks, understanding not just how the infrastructure is performing, but how this is impacting their key customers and any resulting impact on the business."
The news is a sign, above all, that operators can no longer countenance the sort of network economics that they are stuck with on 3G. After all, it was only two weeks ago that we were reporting Orange Spain's call for increase LTE network sharing. The issue is, if you are not part of the sharing deal, and you have a regulator who is determined to add a third or fourth player (Free Mobile, Three UK), then what market mechanisms will be required to introduce a level playing field?
Keith Dyer
Editor
Mobile Europe
LIVE WEBINARS, 12th and 14th June:
Finally, please don’t miss out on our exclusive webinars next week. The webinars are on Small Cells and the Het Net, and on using device and application analytics to inform the next level of customer service. Join us.