Passive Infrastructure Sharing is the most widespread and accessible type of joint

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1 Global Experience of Infrastructure Sharing by Mobile Network Operators research results are presented for your attention by J son & Partners Consulting Company. Relevance and Types of Network Sharing The relevance of network sharing by mobile network operators is based on the growth of operators motivation to the more efficient conduct of business and reduction of expenses due to the impact of the following factors: high competition on the mobile communication market and, as a result, reduction of average revenue per user (ARPU); risk of reduction of revenues from basic services in the conditions of communication services spread from the third-party companies (OTT); the demand for large investments in new generation networks (3G, 4G) under the competition and regulator pressure (demands on licensed coverage, including unprofitable areas); the need of more efficient usage of radio frequency resource in the conditions of its severe shortage; the environmental requirements for reduction of negative impact of network infrastructure on the environment and person. Passive and Active Infrastructure Sharing are distinguished. Site sharing, AMS (antenna mast structures) and backhauls sharing refer to the Passive Sharing type that is of the largest spread. Active Sharing implies sharing elements of radio access network (RAN) and, more complicated and rare variant, - sharing elements of Core Network. Site Sharing model is actively used both in developed and developing countries. For example, from 20% to 40% of sites (depending on operator) are shared in France. In Germany operators of T-Mobile and O2 are sharing sites for 2G-networks since 2001, and they share sites for 3G networks since There were created independent tower companies in the USA and Great Britain that lease sites for several operators (several operators per one site). The same practice is used in India, where more than 40% of sites are shared. Passive Infrastructure Sharing is the most widespread and accessible type of joint 1

2 usage. Though this model allows operators to reduce their costs not as significantly as when Active Infrastructure Sharing. In Passive Sharing model the calculated mean savings during 5 years amounts up to 5% and up to 10% for CAPEX and OPEX respectively. RAN Sharing is more complicated as compared to Passive Sharing. It implies sharing of all equipment of the access network including antennas, masts, base stations and, in more complicated and rare cases, backhaul networks. One of the recent examples of RAN Sharing is a joint venture between Scandinavian Telenor and Tele2 operators when deploying LTE network. In the range of states, including Russia, active infrastructure sharing is forbidden at the legislative level. Though, recently the situation changes for the better. Advantages of logical nodes sharing of the core network are not that obvious as when sharing radio access network. Operators may obtain definite reducing of operational and setup costs, though economy scale and usefulness of this model in general remains undefined. At the moment, operators are mainly focused on sharing the elements of access network because cost reduction generally in this case is major and understandable. Nowadays RAN Sharing model generally is relevant for new LTE networks deployment. The advantages from sharing of core network logical nods are unobvious, economy scale and usefulness of this model in general remain undefined. That is why the Network Sharing type is used very seldom. MOCN (Multi Operator Core Network) standard, developed by group of companies 3GPP, allows two operators to share not only radio access network, but also to share spectrum. In particular, this standard enables operators to join their frequencies into much bigger packets which is particularly topical for LTE networks deployment and LTE Advanced in prospect. Unfortunately, in most countries including Russia there is a restriction to joining frequencies (or using frequencies, allocated to the other operator). Regulatory barriers are the main constraints for launching Spectrum Sharing mechanism, in spite of the fact that this model allows optimizing the use of the frequency spectrum under the conditions of its severe shortage in many countries including Russia. In J son & Partners Consulting opinion, the situation in the industrial regulation field may begin changing already in 2013, and the required changes for the provisioning of such models of sharing as RAN Sharing and Spectrum Sharing, may appear in the Communication Law in middle term. This would have enabled operators flexibly proceed to the variant of shared network construction and development. At that, the most attractive for the market, according to J son & Partners Consulting, would be the model, which would have included such types of Network Sharing as sites and АМС, RAN and licensed frequencies sharing. An important trend is setting up of affiliated infrastructure (management) companies, creation of common enterprises, which would have professionally constructed and managed communication objects, by mobile network operators. Such model of non-core activity outsourcing, according to the experience of other countries (the USA, India etc.), may be economically sound and effective. 2

3 Transfer of tower infrastructure to the common company would have allowed Russian operators to get rid of double towers and reduce their costs for maintenance and deployment of the networks. Though operators still cannot find an optimal scheme of single company creation. The main difficulty is to find scheme sufficient for all players, where the interests of its participants with different tower quantity will not be deprived. According to Orange estimations, capital and operating costs of the operators can significantly (up to twice) reduce, depending on Network Sharing type (see Figure). Figure 1. CAPEX and OPEX operators per one site when using different types of Network Sharing 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Отдельный Separate оператор operator Passive Network Sharing Active RAN sharing Объединенные Joined radio сети RAN access networks Source: Orange Group,

4 Network resource sharing allows operators to reduce their capital and operating costs significantly. Top-performing in terms of economy is the organization of sharing of radio access network and core network, but at that, the complexity of implementation of such model grows (see Table). Table 1. Economic Advantages of Different Network Sharing Types Network Sharing Types Calculated average annual economy during 5 years Passive sharing OPEX 8-10% CAPEX 4-5% Active RAN sharing OPEX 20-26% CAPEX 24-31% Active RAN and core network sharing OPEX 23-28% CAPEX 27-33% International experience Source: VimpelCom, 2012 Complexity implementation of Network sharing has become and continues to be one of the key trends in mobile communication development. At the beginning of January 2013 four largest mobile network operators of Europe (Deutsche Telecom, France Telecom, Telecom Italia and Telefonica) discussed the possibilities of sharing their resources. This cooperation is actively forwarded by the European Commission. The occurance of the new pan-european operator acting upon Network Sharing model is possible in the nearest future due to the efforts of the executive bodies of the United Europe. In general, this process is quite active thrughout the world, usually it is initiated by governments. Orange Company as the prime example, according to the data as of the end of 2011, there were from 11.3% of sites (region of Asia, Middle East and Africa, AMEA) in the countries of mobile network operator presence and up to 65.7% (Spain) of sites sharing with other operators (on an avarage of presence regions is 26%) (see Figure). Figure 2. Share of Site Sharing in Orange Company, Poland 2010: 18.4% 2011: 20.0% Zone EME* 2010: 14.1% France 2010: 13.1% Zone AMEA 2010: 11.6% 2011: 11.3% Spain 2010: 64.4% * Europe & Middle East (EME) 4

5 Sourse: Orange, 2012 Drivers and Constraints Network Sharing model is actively used by operators throughout the world. The main drivers of network sharing are: Reduction of CAPEX and OPEX Entry into new markets Networks deployment in sparsely populated areas Regulator s mandatory requirements. Usually, main difficulties appear when operators try to perform active network infrastructure exchange. First of all, it is connected with different approaches of the operators to the network planning and operating, difficulties with network planning, technological inequality, difficulties with parity infrastructure exchange, problems with safety of confidential technical information and etc. It is necessary to take into account a range of important moments, in spite of the fact that Network Sharing model in general presents operators the real opportunity to optimise the expenses and offer clients much higher service level. In particular, infrastructure sharing requires initial investments covering expenses for restructuring of current business-model and infrustructure. At that, during implementation of this model additional risks arise, for example, connected with possible loss of the market share. The issues of the legislative regulation are also a serious problem. Russian experience Several projects of Network Sharing were implemented in Russia, almost all of them had passive infrustructure exchange AMS and sites, FOCL (fiber-optical communication line) etc. Current sectoral legislation prohibits operators active infrastructure sharing (radio-transmitting equipment) and frequency resource sharing. Thus, projects in Active Network Sharing sphere in Russia are beyond the legal framework. Nevertheless, the definite improvemets take place at the legislative level that allow relying on prospective implementation of projects in the field of RAN Sharing and frequencies sharing in Russia. The following may be given as an example of successful projects of infrastructure sharing: projects with energy companies (MTS, VimpelCom, Rostelecom and etc.); the partnership of MTS and Rostelecom for joint development, usage and technical support of their mobile and fixed communication networks; agreement between MTS and VimpelCom for joint construction of FOCL sections and exchange of existing backhauls on a parity basis; cooperation of MegaFon and Scartel according to MVNO model and passive infrastructure sharing; 5

6 project on covering the Amur federal highway project on optimization of AMS quantity on routes of Sapsan deluxe train. MVNO scale projects in Russia on LTE networks are implemented on actual basis only between affiliated companies. To change the current situation, the intrusion of the regulator is essential. As of the date of report writing, the claim according to the fact of the antitrust legislation violation was issued against key player on the LTE market. Generally, the current situation in the field of frequencies allocation for LTE development in Russia shall be one of the essential drivers for implementation of the model of frequencies and active infrastructure sharing by operators. Despite the existing difficulties, this concept can be implemented in middle term (3-5 years) after the customization of sectorial legislation. Until that time operators, generally, will implement the projects in the field of passive infrastructure sharing. 6

7 List of Contents of the Full Version of the Report «Global Experience of Infrastructure Sharing by Mobile Network Operators» List of Contents of the Report Terms and Abbreviations Executive Summary INTRODUCTION: Prerequisites and goals of Network Sharing 1. Network Sharing types 1.1. Sites sharing or/ and antenna mast structures 1.2. Backhaul sharing 1.3. RAN Sharing 1.4. Core network sharing Transmission ring sharing Core network elements and platforms sharing 1.5. Network roaming 2. Licensed Spectrum Sharing 3. Management companies for services provisioning according to the Network Sharing model 4. International business-cases 4.1. Sweden Network Sharing model occurrence Licence provisions Regulation Law enforcement practice Cooperation results 4.2. Great Britain 4.3. Spain 4.4. Poland 4.5. Italy 4.6. Denmark 4.7. Austria 4.8. India 4.9. France Australia Pakistan Saudi Arabia 7

8 5. Factors constrainting the development of Network Sharing model 5.1. Difficulties in obtaining mutual agreement and in parity infrustructure exchange 5.2. Incremental costs and risks 5.3. Difficulties with networks planning 5.4. Selection of companies integration type, problems connected with change of organizational culture and reports presenting 5.5. Problems of legislative regulation 5.6. Security problems during base stations sharing 6. Telecommunicational infrastructure sharing experience in Russia 6.1. Active infrastructure and frequency resource sharing 6.2. MVNO projects 6.3. Passive infrastructure sharing Projects with energy companies MTS and Rostelecom project MegaFon and Scartel project Prospects of single infrastructure company creation Project on covering the Amur federal highway Sapsan project Summaries and conclusions Annex 1. BASIC ELEMENTS OF NETWORK ARCHITECTURE FOR SHARING List of Figures Fig. 1. Basic prerequisites for the development of Network Sharing model Fig. 2. Shared access to the site (leftward) and to the AMS (rightward) Fig. 3. Example of site and its separate element sharing Fig. 4. Radio access network sharing Fig. 5. Transmission ring sharing at the level of network core Fig. 6. Core network elements and platforms sahring Fig. 7. Shared access to the core network Fig. 8. Network roaming Fig. 9. Pros and cons of nonshared and shared spectrum Fig. 10. Sharing of licensed frequency spectrum, radio access network and passive equipment Fig. 11. Resons for transfering AMS to the independent management companies Fig. 12. Allocation of number of towers for mobile communications according to the regions, 2011 Fig. 13. International AMS markets, 2011 Fig. 14. Share of shared sites in the Orange Company,

9 Fig. 15. Profitability of Swedish and Danish operators with the deduction of capital costs (annually) depending on the territory of 3G network implementation Fig. 16. CAPEX per one subscriber in Sweden (dollars), 2000 Fig. 17. Shares of Swedish operators, 2000 Fig. 18. Shared operation of the networks by Swedish mobile network operators Fig. 19. Change of Swedish mobile network operators market shares according to the number of subscribers (leftwards) and according to the total revenue (rightwards) during the period of working according to the scheme of network resources sharing, Fig. 20. Share in total revenue from network sharing Fig. 21. Operator s CAPEX and OPEX per one site during usage of different Network Sharing types Fig. 22. Result of operational synergy for each of operators, million euro per year Fig. 23. Costs for restructuring as compared to the annual cost reducing Fig. 24. Participants of infrastructure sharing agreement Fig. 25. Allocation of LTE frequency bands in Russia, 2012 Fig. 26. Standard scheme of implementation of the prospective Active RAN Sharing model in Russia Fig. 27. Amur federal highway mobile communication coverage Fig. 28. Basic elements of network architecture for sharing 9

10 List of Tables Table 1. Basic advantages and disadvantages of RAN sharing Table 2. Advantages and disadvantages of core network sharing Table 3. Potential of cost reduction from network infrastructure sharing Table 4. Economic advantages of different Network Sharing types Table 5. Advantages from Network Sharing by types Table 6. Forms of occurrence of independent infrastructure (management) companies Table 7. Key participants of Network Sharing in Sweden Table 8. Economic substantiation, technical aspects and frequency of usage of different forms of Network Sharing Table 9. Analysis of money flows during Network Sharing, А and B operators Table 10. Spectrum Sharing variants in Russia and peak rates on LTE-800 networks Table 11. Optimization of number of sites in Sapsan project in Saint Petersburg-Moscow- Nizhny Novgorod section The newsletter was prepared by the J'son & Partners Consulting Company. We exert every effort to provide actual and forecasting data representing the situation in full and available at the time of the publication of the material. J'son & Partners Consulting reserves the right of revising the data after publication of some new official information by individual players. CONTACT FOR MORE INFORMATION: Pavel Yermolich Commercial Director Pavel@json.ru 10