The arrival of the iPhone, Android and iPad will raise the stakes higher in the mobile broadband market. The fact that iPhone alone has over 140,000 Apps over sort of open networks, not portals, shows the demand for mobile applications. This will put an enormous strain on the infrastructure of the mobile operators and will require them to build fibre networks to all mobile stations, as well as invest in more spectrum and new technologies such as LTE.
At the same time the mobile subscriber markets are becoming saturated and competition is driving margins down. It is highly unlikely that consumers are going to double their mobile spend simply to get mobile broadband, because in the end consumers have a budget and, with or without broadband, that budget is suddenly not going to double in size.
Driven by these financial realities, while mobile operators are becoming increasingly interested in sharing, they are also very aware of the risks they are taking. As we have seen in Europe (see below) such activities could be seen as anti-competitive and the mobile operators, eager to keep their lucrative vertically integrated businesses going, are very much aware of the regulatory dangers involved in doing this.
It will be interesting to see how this will develop further. As we have seen with the iPhone, this device has singlehandedly changed the dynamics within the mobile industry. The market is no longer driven by what the operators dictate, but by the devices which the manufacturers and the Apps provide. The mobile content portals of the carriers failed to achieve in a decade what Apps, based on an open network environment, will achieve with leadership of the mobile content market this year. Apps revenue will overtake mobile carriers' portal revenue during the next 12 to 18 months.
This trend will result in more power being taken away from the mobile operators. It will only be a matter of time before other providers will be able to negotiate better wholesale deals with the operators and this will mean that they are then only one step away from structural separation. At the point in time when companies such as Apple, Google and leading Apps providers have gained sufficient market power, it would no longer make any financial or business sense to keep overbuilding mobile networks, so better sharing arrangements will be required to underpin the 4G mobile network investments in the future.
Australia and New Zealand
With massive investments and more competitive processes ahead of them, mobile operators in New Zealand are beginning to look at opportunities to share. Mobile operators have been at loggerheads with each other for over a decade regarding sharing facilities but recently, in the wake of heavy investment, they have been forced together to address this issue moving forward to 4G.
Australia was possibly the first country where infrastructure sharing arrangements were made between the four mobile operators. However this did not happen in the way it was envisaged, and ultimately only two providers continued to work together in a contractual arrangement where Telstra shared ownership and control of the Hutchison Radio Access Network (RAN) through 3GIS. There is a similar development in Europe.
In Asia some governments have introduced policies that require mobile operators to share passive network infrastructure. China, India, Indonesia, Sri Lanka and Bangladesh are supporting passive infrastructure sharing in order to prevent large-scale network duplication and the enormous costs involved in network build-outs.
In China, for example, operators will be required to share towers and the fibre pipes that connect the towers to base stations. The policies apply mainly to new 3G network construction, rather than existing 2G infrastructure.
In January 2010 China Telecom and China Unicom agreed to build 500 3G base stations together in Shanghai in 2010. The deal will save an estimated RMB300 million (US$43.9 million).
However, so far there have not been any announcements regarding shared 4G rollouts. Operators in Japan, the most advanced country in this market, are building them separately with the first launches expected at end-2010.
In March 2009 Tele2 and Telenor announced plans to build a joint 4G network in Sweden through Net4Mobility, a joint venture for network construction and spectrum sharing. Telenor also holds a 4G licence in Norway, where it has started testing LTE technology. The roll-out of what would be Sweden's most extensive 4G network was started in December 2009 with equipment supplied by Huawei. Mobile Internet services based on LTE should be launched at the end of 2010.
By 2013 the operators expected to cover 99% of the population, providing speeds of up to 80Mb/s in rural areas and up to 150Mb/s in urban areas. The joint network would use part of the 2×20MHz of FDD spectrum which they bought separately in 2008. The partnership would also see the two operators share existing 900MHz GSM spectrum and extend their GSM network by up to 50% to support voice services on the new network.
The trademark of the joint venture is Mobile Norway, which is the mobile network operator 50% owned by Network Norway and 50% by Tele2. Mobile Norway planned to deploy the third network in Norway with nationwide coverage on the GSM 900MHz band. It also has a 3G licence. The company signed a roaming deal with Telenor in mid-2008 (having previously been hosted by TeliaSonera), providing it with network access in areas of the country where it did not have a network.
In February 2009 Network Norway contracted Cisco to deploy a mobile Internet platform based on Cisco's IP NGN architecture, and in the following December it contracted Ericsson to build its 3G mobile broadband infrastructure with the aim of covering 75% of the population.
In September 2009 Deutsche Telekom and France entered into negotiations to combine T-Mobile UK and Orange UK in a new 50:50 joint venture company, having a combined mobile customer base of around 28.4 million, representing about 37% of the UK's mobile subscribers. The merger and integration of the two units were estimated to generate €4 billion (£3.5 billion), with annual operating cost savings of £445 million from 2014. The deal came under the scrutiny of the regulator and the EC, while the other MNOs also voiced their concern, particularly the implications for Virgin Mobile (the country's largest MVNO) which runs on T-Mobile's network and accounts for about 25% of its UK customers.
In addition, there are implications for both Vodafone and 3UK. In May 2009 O2 signed a deal with Vodafone to share infrastructure costs for passive network components across Europe. Vodafone and O2 operate in the 900MHz spectrum, meaning that sharing antennae is less problematic. Vodafone's brief network-sharing arrangement with Orange was complicated by the fact that Orange operates at 1800MHz. In 2008 T-Mobile and 3UK set up a network sharing agreement which they expected would generate cost savings of £2 billion over the following ten years. Although masts and the 3G access networks are being combined, each company's core network and T-Mobile's 2G network will not be shared.
Both parties will retain responsibility for delivering services to their customers and use their own frequency spectrum. A 50:50 joint venture company, Mobile Broadband Network (MBN), was set up to operate the joint network on behalf of both companies. Over 5,000 duplicate sites from both carriers (about 30% of the total) will be decommissioned. In August 2008 Mobile Broadband Network selected Nokia Siemens Networks (NSN) as its 3G network infrastructure supplier. NSN's radio access solution will replace most of the two operators' communications stations across the UK, while equipment at the remaining sites will be upgraded and reconfigured for higher quality and capacity.
Telecom Italia and Vodafone signed a six-year agreement in November 2007 to share their existing and future mobile network access sites. The deal renews an earlier agreement which enabled the two operators to share infrastructure such as poles, cables, electrical and air-conditioning equipment. The operators will use each other's infrastructure to help improve their network footprint without paying out for new equipment.
In July 2009 Telecom Italia and 3 Italia signed a three year network sharing agreement, affecting some 2,000 sites nationwide. Each operator will retain ownership of its network infrastructure but is required to open sites to house its partner's equipment. The agreement conforms to the 2003 Electronic Communications Code (ECC) which calls for the more efficient use of network infrastructure in urban and rural areas. The operators expect cost savings of around 30%.
In the Middle East the only case in point I'm aware of is very minor sharing in 3G. The UAE regulator has established a committee to preside over base station arrangements between the two operators, Etisalat and du. Etisalat and du are meant to share transmitter sites but retain individual antennas.