Patrik Jakobson is Head of Network Sharing at Ericsson Global Services. His area is focused on developing the wholesale network sharing business as an evolved Managed Services model to support operators to achieve further opex and capex savings. TowerXchange spoke to Patrik to find out how he thought Wholesale Network Sharing could work in Africa.
TowerXchange: Please contrast the business models of today’s passive infrastructure sharing with the concept of wholesale network sharing - how does each model create value for operators and for third party network partners (“NetCos”)?
Patrik Jakobson, Head of Network Sharing, Ericsson Global Services:
I see differences along two different dimensions. Firstly, passive network sharing includes only towers, shelters, fencing et cetera, while the wholesale model includes active components – RAN, radio base stations, backhaul, controllers, even in some cases the core network (there’s a trade off between complexity and savings when it comes to the core network).
The second difference is the involvement of a third party. Passive network sharing can be bi-lateral between two operators or through a third party towercos, whereas wholesale network sharing bundles interdependent passive and active components to be managed by a third party NetCo. The wholesale model can be a good option when consolidating operators, when sharing a build out, or as an alternative to RAN sharing.
Ericsson see wholesale network sharing as an extended managed services proposition. It’s different from the towerco model in that we don’t make money from the real estate business, we take out more costs year on year, creating efficiencies and scale.
TowerXchange: What kind of entity could provide these NetCo wholesale network sharing services – is it an opportunity for towercos to move up the value chain, an opportunity for active equipment specialists like Ericsson, or an opportunity for a new breed of NetCo?
Patrik Jakobson, Head of Network Sharing, Ericsson Global Services:
Wholesale network sharing could be an opportunity for newcos, or it could be an opportunity for companies like Ericsson to offer the service with the support of an infrastructure fund. Infrastructure funds are attracted by the lure of long-term cash-generating contracts, with the possibility to create extra value by bundling passive and active network segments.
Towercos might be interested to move up the value chain, but wholesale network sharing is closer to Ericsson’s core business, and we’re interested in taking on operational and technology risks over long-term contracts.
TowerXchange: Some African operators remain reluctant to share even passive infrastructure in markets where coverage remains a critical differentiator, what are the drivers that would compel operators to participate in Wholesale Network Sharing?
Patrik Jakobson, Head of Network Sharing, Ericsson Global Services:
Lack of spectrum and licenses provides an incentive to share. For example at the 800MHz band there’s often only enough frequency for three different LTE licenses, so if you have four or more 2G and 3G operators then someone is going to have to share, or lose out.
The wholesale model also offers sustainable economics for operators that are subscale, for example operators ranked third, fourth or fifth in some African markets. Such players often have scale disadvantage compared to the market leaders, which might mean they can’t rollout scalable LTE. Wholesale network sharing can be a means to acquire scale.
Wholesale network sharing can also be compelling in rural areas in which there’s less traffic, the relative cost per minute or cost per gigabyte of data is higher than in areas with greater population density.
Finally, the wholesale model offers an opportunity for operators to divest active and passive networks, leasing them back from a NetCo, releasing cash, reducing debt and easing their balance sheet. This might be especially relevant in circumstances of consolidation, where there is typically a 3-4 year cycle to payback – an asset divestiture can release cash to offset that loan payback period.
TowerXchange: In our experience, many African regulators have yet to draft or are still drafting explicit passive infrastructure sharing regulations. There may be no explicit policy concerning active network sharing. What should be the role of the regulator in Wholesale Network Sharing?
Patrik Jakobson, Head of Network Sharing, Ericsson Global Services:
I agree that regulators in some markets haven’t drafted explicit regulations about active or wholesale network sharing. We advocate that regulators continue to take a liberal approach to new technologies, active network and spectrum sharing. Opening up markets for active infrastructure sharing supports sustainable mobile broadband, and we all know that there’s a correlation between mobile broadband and GDP growth. So regulators recognise that if they can facilitate infrastructure sharing it can reduce price points for the rollout of LTE as mobile broadband infrastructure, which might achieve wider adoption than expensive fixed broadband.
It’s important for regulators to allow wholesale sharing among different operators, and allow a neutral third party to own, manage and provide that capacity without their own operator license. The NetCo could be seen as a type of subcontractor of shared capacity.
TowerXchange: Is there a role in wholesale network sharing for specialist passive infrastructure management companies, such as towercos and fibrecos, as well as for and “InfraCos” or “NetCos” – companies focused on active infrastructure?
Patrik Jakobson, Head of Network Sharing, Ericsson Global Services:
Towercos are becoming established in Africa, but there remains an interdependence between passive and active network components. Many operators are consolidating 2G and 3G at same time as building LTE, and there are interdependences in the design of the network. It’s important to keep passive and active components together to create an end-to-end service offering encompassing capacity and coverage, governed by NetCo’s Service Level Agreements. There’s a clear advantage to holding passive and active together to reduce complexity.
TowerXchange: How could wholesale network sharing work in Africa? For example, are initiatives such as Open LTE in Kenya illustrative of how the wholesale business model could work in Africa?
Patrik Jakobson, Head of Network Sharing, Ericsson Global Services:
The open access network model, where a single license is offered to a wholesale player (as has been discussed in Rwanda and Kenya) is one a sub-segment of the potential Wholesale NetCo model.
But wholesale network sharing doesn’t have to mean only one open network in each market. In established markets you might see two or three operators coming together to share under a wholesale model, while the market leader takes a traditional model.
TowerXchange: Can you give some examples of how the wholesale network sharing model has been implemented outside Africa?
Patrik Jakobson, Head of Network Sharing, Ericsson Global Services:
Ericsson is working with Deutsche Telekom Germany where Ericsson acquired 5000 micro-wave hops from DT and are providing shared capacity based on Key Performance Indicators/Service Level Agreement to DT and other operators, in a third party set-up spanning a long-term contract period.
We’re engaging with other operators and infrastructure funds in Europe about other potential wholesale network sharing opportunities. There is also lots of activity around LTE auctions, with some operators left without licenses and needing to look at new wholesale business models.
TowerXchange: Please sum up the benefits of wholesale network sharing.
Patrik Jakobson, Head of Network Sharing, Ericsson Global Services:
Wholesale network sharing unlocks capex and opex savings from passive and active infrastructure. Operators can use wholesale business models to release cash by divesting passive and active assets and leasing them back, relieving themselves of operational and technical risk, securing operational capacity at a known price, and securing performance commitments over a long term contract.
Even we don’t know what products there will be in the portfolio in five +/- years, but we have the technology insights through our R&D arms, so we advocate transferring technology risk to a technology leader who can commit to price/performance improvements. Working with a NetCo also offers flexibility: neutral governance overcomes the challenges faced by operators who are bi-laterally sharing assets, who often have confidentiality and prioritization concerns, and who may wish to expand networks at a different pace.
Finally, splitting the value chain into NetCos with high capital requirements yet predictable revenue, separated from operators subject to ‘retail risk’ can yield an increased valuation. Service-centric operators benefit from volume discounts from NetCos and can realize higher yield from divestitures and/or lower leaseback costs over long term contracts, when spinning-off networks that can achieve a higher valuations if classified as infrastructure rather than bundled with retail risk.
