Network sharing and 5G
Network
sharing will be a key lever to reduce cost and make 5G deployments feasible.
Network sharing has become a
standard part of the operating model for mobile operators, and the trend is
accelerating. Operators have been able to reduce the total cost of ownership by
up to 30 percent while improving network quality through sharing a variety of
both active and passive equipment. 5G will be no exception, with operators
eyeing new ways of accelerating the deployment of an otherwise daunting
investment.
The cost savings
potential for network sharing is even stronger with 5G, as greenfield
deployment is better suited for sharing because it avoids the cost of network
consolidation. For example, the cost of small-cell deployment can be reduced by
up to 50 percent if three players share the same network. But the rationale for
sharing extends beyond cost, as it could solve many practical roadblocks of 5G
deployment in urban areas, such as the potential for urban disruption and visual
pollution from the installation of excessive equipment and fiber.
Given these arguments
for network sharing, operators will need to have strong commercial rationale to
justify stand-alone deployment of 5G, rather than sharing a common 5G network.
Although such cases may exist for certain operators in particular markets, for
many operators, sharing will be a necessity and requires preparation now.
5G deployment: Increased cost and disruption to cities
As operators gear up
for the next wave of infrastructure investments to support innovative 5G use
cases and ever-growing customer demand for mobile broadband, the numbers look
more daunting than previously expected. To proceed alone, network investments would
have increase by up to 60 percent with a significant increase in operating
expenses, doubling total costs from 2020 to 2025, according to one of our
analyses in a European context. This is much more expensive than many in the
industry expect. This investment would be required for the deployment of a new,
countrywide 5G IoT macro layer, small cells in urban areas, and the evolution
of and capacity upgrades to the existing 4G macro network.
In addition to the
financial challenges of operating alone, which include the risk of limited
revenue upside, operators will face increasing physical constraints when
densifying their networks in urban areas. A simulation of a 5G buildout from
2018 to 2025 showed that the number of macro sites needed would increase by approximately
20 percent, in addition to new small cells, equal to 100 to 150 percent of the
current number of macro sites. Installing the equipment and underground fiber
lines required for this level of densification would involve a massive physical
disturbance, primarily in already cramped urban settings.
Network sharing is compatible with different 5G
strategies
Operators are already
contemplating their options for 5G deployment. The approach typically falls
into two groups: market leaders that believe in commercial acceleration and the
price premium of network superiority, and cost-effective attackers that compete
on other dimensions. In Europe, where active network sharing is frequent, we
have seen that sharing can be applied in both situations, although with
different strategic rationales. Two market leaders in a four-player market
might be willing to share a superior network to polarize the market, for
example, or two attackers might join forces to improve network quality and
compete jointly against the market leader. In fact, network sharing has become
increasingly common since 2010.
Like in previous
generations of sharing, 5G network sharing can be further adapted to support
competitors’ different needs, such as through depth of sharing (small cell versus
5G IoT macro layer), or setting up different sharing models in competitive
urban markets versus rural coverage areas. Tailoring deals to specific
situations allows operators with different needs to find common ground and
uncover new savings.
In the most extreme
cases—to maximize benefits—a single 5G network could be built in which all
players in the market gain wholesale access. Entry to the market would still be
controlled through spectrum ownership, and competition for services would
remain unchanged. Some regulators, such as in Australia and Singapore, are
promoting this idea of fixed networks.
Many players in the
value chain have already started betting on network sharing. Tower companies,
for example, are predicting densification in urban areas and have already
started securing access to lampposts and rights of way, and buying up fiber
infrastructure.
Design standards and regulators can enable network
sharing
With 5G standards still
not yet finalized, the telco industry has pushed for native design for network
sharing. The 5G technologies will build on existing sharing models from the
prior generations (MORAN,1MOCN2) but will be
supplemented with new features such as network slicing, which allows dynamic
resource allocation to specific traffic or use case groups among operators.
Network sharing also is
a means to accelerate 5G deployment, and to minimize disturbances from
construction work and visual pollution. While telco mergers are often blocked
or approved only with significant remedies, network-sharing deals have been
approved in most cases, and are even encouraged in many markets. Given that we
are still in the early days of 5G, operators have the opportunity to
participate in regulatory dialogue on alternative development paths and
conditions for deployment.
Compelling case: Possible 5G cost reduction of more than
40 percent
The strongest rationale
for sharing will be cost savings and improved network quality. This is
especially true for greenfield deployments such as small cells, where three
operators can save up to 50 percent each through sharing, according to our
research. Simulations from one case showed that by sharing 5G small-cell
deployment and building a common, nationwide 5G IoT macro layer, operators
could reduce 5G-related investments by more than 40 percent. At the same time
operators could also reduce the risk of their buildout plans by sharing access
to capacity and paying accordingly.
Now is the time to start negotiations
The cost of exploring
network sharing is relatively low given the scale of the opportunity. Achieving
a network-sharing agreement is a complex and timely matter. The time from
initial discussions and feasibility analysis to a signed contract can easily be
six to nine months. If operators plan to meet expectations for 5G deployment
before 2020, or act before they are forced into 5G deployment by competitors,
they need to start now.
The expected costs
involved with building out 5G technology are higher than anticipated, according
to our research, with network investments for new uses going up as much as 60
percent and a significant increase in operating expenses. Network sharing
offers strong potential for cost savings. Yet operators must act now to
participate in decisions that could accelerate—or impede—network sharing for
5G.
By Ferry Grijpink, Alexandre Ménard, Halldor Sigurdsson, and Nemanja Vucevic February 2018
https://www.mckinsey.com/industries/telecommunications/our-insights/network-sharing-and-5g-a-turning-point-for-lone-riders?cid=other-eml-alt-mip-mck-oth-1802&hlkid=2c42ab40c74145f1adcf71deae1fcb7c&hctky=1627601&hdpid=33ced573-471c-4a91-859e-c60e93b75630
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