24 March 2009 | Published by Ovum

Network sharing: a cost-cutting tool

Network sharing is nothing new but, at a time when cost control is more critical than ever, it is no real surprise to see well-established operators in Western Europe announcing new network-sharing agreements. Here the interest is more in the scale of the agreement, as it covers no less than four different countries (and soon five if the Czech Republic is included). It is also interesting to note that in Europe Vodafone is already sharing sites with several operators in several countries including, among others, TIM in Italy and Orange in the UK and Romania. This announcement further confirms Vodafone’s positive inclination towards passive network sharing.

In developed countries, 3G coverage requirements and the impact of mobile broadband adoption, in particular on backhaul, are among the main drivers for the adoption of network sharing. On the 2G front, the well-established operators already offer 99% population coverage so there is not much difference in coverage, meaning it makes sense to rationalise costs as much as possible in this domain. In our report ‘Network sharing: a hot topic, again‘, published last year, we anticipated continuous traction in this domain given the increasing pressure on the mobile operators’ cost structures.

The agreement demonstrates that the wireless industry is still primarily focused on site sharing and passive network sharing

Another lesson from this deal is the confirmation that site sharing is the most common network-sharing method due to its relative ease of implementation. Site sharing has been largely used for 2G networks and is increasingly being adopted for 3G as well. Many regulators are encouraging it because of its positive impact on the environment, but also on the potential to roll out 3G in rural areas more quickly. For operators, which sometimes face coverage obligations for 3G, such partnerships make a lot of sense from the perspective of total cost of ownership.

Of course, going beyond the sharing of passive network elements (such as sites and masts) is much more challenging and few operators adopt this strategy despite the much greater potential savings of RAN sharing and common shared network approaches. As well as the regulatory issues that may even prevent the adoption of such approaches (especially for the common shared approach), the implementation of such agreements is far more complex. In addition, from a strategic level, active sharing requires much closer relationships and, in some respect, having a similar network strategy. Active sharing often ends up with the creation of an independent structure to manage the common network operations.

For example, T-Mobile UK and 3 UK created a joint venture called Mobile Broadband Network Limited when they decided to share their radio access networks in the UK as part of their cost-cutting measures. In order to illustrate the difference in the adoption of active and passive sharing methods, we can refer to Vodafone’s claims a year ago. In March 2008, the mobile operator revealed that 32% of its 73,000 sites in Europe were shared passively, while about only 2% of them were shared actively. Globally Vodafone now has 17 passive agreements and two active agreements (in Australia and Spain).

Vodafone’s deal with Telefonica marks a new step in a week rich in network infrastructure cost-cutting initiatives

Although network sharing is an interesting way to reduce costs, announcements last week remind us that it is just one option. For example, Vodafone’s network-sharing agreements with Telefonica follow a large seven-year outsourcing deal announced last week with Ericsson for Vodafone UK operations.

Thanks to the outsourcing contract, Jeni Mundy, CTO at Vodafone UK, stated that it expected “cost efficiencies of 25 % over the life of the contract.” The savings will include the transfer of 350 Vodafone employees to Ericsson. At the same time last week, Orange announced outsourcing deals with Nokia Siemens Networks for its operations in Spain and the UK. Orange will transfer 470 staff out of the business, with 230 going to NSN and the remainder to a front-line maintenance subcontractor in the UK.

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