Research Notes

While the French telecom regulator wants to reduce network sharing, on January 29 Mexico will launch its carrier’s carrier program, making it one of the first countries in the world to have national carrier’s carrier LTE network

Consolidation of the mobile industry is a reality. The question is not whether the mobile market will experience consolidation but how and in which countries. The French telecom regulator ARCEP has just launched a public consultation which contemplates limiting network sharing. But network sharing has been vital to the French telecom industry, consider the cooperation between SFR and French Bouygues Telecom as well as Orange with Free Mobile. See Strand Consult’s research note.

Meanwhile CoFeTel, the Mexican telecom regulator, will launch a tender for a carrier’s carrier LTE network on 29 January. Mexican authorities, recognizing the barrier of high up-front investment costs, see infrastructure as a important tool to ensure good mobile coverage and broadband in rural areas.

A carrier’s carrier is a business model in which an operator with a mobile network serves only wholesale customers, such as mobile operators, ISPs, and MVNOs. In markets where many carriers compete, the cost of acquiring customers is high. When prices and margins are under pressure, it is necessary to think outside the box.

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 this model is that the carrier’s carrier not will compete with other players because it will not serve end user customers. The classic conflict of interest problem from mandated access where an operator needs to compete on the retail market with its wholesale customers is removed in this model.

Strand Consult has worked with the carrier’s carrier model for the last five years and has supported a number of projects in different countries. The carrier’s carrier 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 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 will move in one of two directions.

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 2. 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.

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 selling off 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.

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 a number of 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 operators.

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. Learn How a carrier’s carrier can develop and add value to a mobile market can help your organization by contacting Strand Consult.

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