Research Notes

Many mobile operators outsource their infrastructure to tower companies for too high a price. This is expensive for shareholders.

Around the world a number of mobile operators outsource their infrastructure (masts, towers etc) to tower companies with a classic “sale and lease back” model. It makes sense for a business to outsource or spin-off non-core activities, but Strand Consult’s analyses shows that outsourcing infrastructure management can result in higher cost for operators. This is because tower companies are generally compensated on commission for the total cost of portfolio of rental locations. Given that their commission grows with the rental price, they are not necessarily incentivized to get the lowest rental price for the location.

To be sure, by outsourcing site management and rental to tower companies, operators may have less administration in dealing directly with site owners (frequently greedy municipalities and private landlords), but operators may face overall higher costs. This means that shareholders earn less.

Strand Consult has worked in this field for some years and finds that most mobile operators do not optimize the conditions for deployment and operation of infrastructure. The issue of high and increasing site rental for mobile infrastructure was a problem in Denmark before Strand Consult brought attention to the issue with its various reports and analyses. The result has been a major improvement for mobile operators and mobile coverage. Rental prices have plummeted. There are a number of new measures to fast track infrastructure deployment. And there is an improved understanding of politicians, the press, and the public on the role of infrastructure to ensure good mobile coverage.

Site rental is one of the fasting growing areas of operational expense (OPEX) for mobile operators. Site owners increasingly exploit an operators’ need to deploy infrastructure as an opportunity to increase the rental price. On top of that, operators have difficulty getting permission to erect towers and masts for a variety of reasons, including arbitrary delays from municipalities, scares about mobile radiation, and other concerns (aesthetic, environmental, architectural etc).

Operators have three options:

1. They can sell their infrastructure, provided they have competent infrastructure manager is willing buy it, and the option is allowed in the country.

2. They can outsource the management of the infrastructure while retaining ownership. They will need to accept the status quo and recognize that rental costs may increase.

3. They can do a better job to manage their infrastructure by getting the tools and strategies to address the rental challenges and systematically lower their rental cost. To be sure, conducting a multi-stakeholder dialogue requires skill and toughness, but Strand Consult has experienced that operators which deploy the right mix of analysis and public affairs can recoup their investment in a few months. Lowered rental costs means better profitability, a saving that is realized year after year, instead of the current situation where rental prices are increasing with no relationship to real estate market.

The UK is a country where it has gotten particularly expensive and difficult to build infrastructure. Rather than clear the way for operators to deploy needed masts and towers, the telecom regulator OFCOM has become adversarial to operators and pressures them to improve mobile coverage without the necessary supports. Naturally the press loves to turn the situation into negative articles about operators dragging their feet on providing essential mobile coverage. This is the outcome of a failed strategy employed by the Mobile Operators Association, a group representing the country’s operators.

In Denmark, the story is quite different. By implementing Strand Consult’s strategy, operators have been able to come together with the regulator, politicians, and local leaders a develop a framework for mobile infrastructure. Based upon Strand Consult’s analysis and recommendations, the parties all recognize that lower rental cost and fast deployment are in everyone’s interest. The report How mobile operators can reduce cost for mobile masts and improve mast regulation describes the process and accomplishments achieved over the past four years in this project.

Strand Consult believes that tower companies need to evolve. To be sure, smart operators will negotiate a deal which compensates managers to achieve lower rental costs. But in practice, most tower companies don’t have the wherewithal to navigate the complex political-regulatory-social systems where skilled communication and dogged determination are necessary.

The report How mobile operators can reduce cost for mobile masts and improve mast regulation describes how Strand Consult has created results for the Danish mobile operators. Its concept to deliver mobile coverage can be use to address challenges in other countries and deliver positive results for shareholders and society.

To learn more about Strand Consult’s knowledge in this area, please contact us.

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