Research Notes

Mexican government awards wholesale mobile network license to Altán Group – This “carrier’s carrier” concept will work in some markets but fail in others

Mexico’s Communication and Transport Ministry awarded a license to build a carrier’s carrier, a wholesale wireless mobile network. Strand Consult assisted the government to design the $7 billion project expected to cover 92 percent of the population. Strand Consult’s report How a carrier’s carrier can add value to the mobile market describes the pros, cons and business models of the concept which is the fundament of a new market actor in Mexico.

There is a lot of talk about consolidation in the mobile industry around the world, and an increasing number of operators will and are share network / infrastructure. Enabling mobile broadband in rural areas with no infrastructure is a related and important issue. LTE has changed the course of the internet’s development. Companies such as Facebook, Google, Microsoft and others now take a mobile first strategy in new markets.

The report How a carrier’s carrier can add value to a mobile market is based on the mobile market, how it is structured, and what happens from an operator gets a license to when they have a signal to sell to their customers. It reviews how mobile operators have evolved over time and how a number of mobile operators have had success with aggressive MVNO strategies. The report looks at how to solve the challenge of getting internet access to rural areas. It pushes the mobile industry to think outside the box.

A carrier’s carrier is a business model in which an operator with a mobile network serves wholesale customers, such as other operators, ISPs or MVNOs. In markets where many carriers compete, the cost of acquiring customers can be as high 25% of sales. It follows then that the operator that has a comparative advantage for building and running network may specialize in that skill and go to the market. The process to become a carrier’s carrier is ideally a competitive one, such as an auction.

The operator that can build and run its network most cost-effectively has a comparative advantage in the marketplace. It may make sense for this operator to specialize just in network and let competitors focus on other areas of the business. Other potential carrier’s carriers include greenfield players that win spectrum as part of the digital dividend, or even smaller operators that would like an alternative future than being part of a consolidation.

The key differentiator in the modern model is that the carrier’s carrier need not compete with players using its infrastructure to serve retail customers. This key difference removes the conflict of interest in service based competition models.

Strand Consult has worked with the carrier’s carrier model for the last six years and has supported a number of projects in different countries. The carrier’s carrier like Red Compartida in Mexico is not a solution for every country and every market, but can be effective in certain applications and contexts. The carrier’s carrier model has emerged as a solution for markets with large rural areas with poor or no internet access, and it may also be a solution for operators with aggressive MVNO strategies.

The report How a carrier’s carrier can add value to a mobile market describes the different stakeholders, the business model and its implementation, and how the model can make the mobile industry more efficient.

Consolidation has important benefits including reduced operating expenditures on network operations, reduced capital expenditure with fewer sites (or the removal of redundant sites), reduced marketing costs, and better utilization of spectrum and infrastructure investment. Sales and marketing costs can consume up to 25% of an operator’s revenue, so reducing this line item through a consolidation is an attractive proposition. Given these cost pressures, the consolidation of the mobile industry can move in one of two directions.

1. Classic consolidation – In many countries, people talk about consolidating the industry from 4-5 players down to 2-3. However the more long-term realistic figure is just two. Mobile prices have fallen globally for the decade while internet traffic has risen steadily. Increasing the number of players in the market for the sake of having many competitors has not only proved wrong fiscally and economically, but few operators are interested in being the 3rd or 4th player. Mobile operators have only one viable alternative to increase ARPU cost effectively: consolidation. This means merging with or acquiring other operators so that the same opex and capex can be shared over a larger enterprise.

2. Infrastructure Sharing – Another way to minimize production costs is to share infrastructure. Outsourcing is one model. This is where an external provider performs the same task for several operators, for example an infrastructure equipment provider manages the network as a service for operators. Another form is where two or more operators share the same network, or merge two networks into one. In this way, the sites, tower structures, shelters, power and cooling, as well as backhaul transmission, backhaul fiber, antenna, and site electronics are shared.

Consolidation allows saving on operating expenditure (land rental, electricity etc), manpower to maintain sites, and duplicate infrastructure. In addition decommissioning the redundant sites can enrich the consolidation with cash. The size and scope of the shared network is generally larger than the individual separate networks. Plus the operators get access to a larger geography and leverage the complementary strengths of the other.

Strand Consult’s report details these two alternatives and specifies the conditions for which operator should be the consolidator and which operators should be consolidated. The report also describes how the carrier’s carrier adds value to the mobile marketplace and how this model can be implemented in a number of markets. It addresses spectrum utilization, network economy, and the number of users that can be reached with an affordable broadband solution.

The report describes the mobile ecosystem and its business models. Going forward, the carrier’s carrier model will be a new way to create shareholder value for some operators. The mobile world has two major challenges: one is to reduce sales and marketing costs, and the other is to produce traffic cost effectively. In the coming years new players and existing operators will use the carrier’s carrier model to offset the many risks of the mobile business.

The report describes how an operator can establish itself as a carrier’s carrier and requirements and challenges that need to be addressed when entering this market. Politicians and regulators can use this report to explore how the market may be developed. The report  was written by professionals with years of insight into the industry. The knowledge included in this report has already been used by regulators in several countries.

For many operators and governments, a carrier’s carrier model will be a preferred alternative to letting an operator of falling profits be part of an inevitable consolidation. Indeed, several operators will consider their future business case to be built on this model.

Some claim that a carrier’s carrier model is a dumb pipe with low profitability. But Strand Consult disagrees. Already satellite providers have managed to leverage the model with profitability, and Strand Consult’s analysis shows that this model can be profitable for all operators in a country like Mexico.

The report How a carrier’s carrier can add value to a mobile market highlights the opportunities, the necessary conditions for the model to work, and the how the actors can maximize the benefits of the model.

Contact us to get a copy of the report

Request the report