Coopetition in Telecom - Discussion on Network Sharing
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MCMC Coopetition in telecom - Discussion On Network Sharing © 2014 PricewaterhouseCoopers Consulting Malaysia Pte Ltd. All rights reserved. "PricewaterhouseCoopers" and/or "PwC" refers to the individual members of the PricewaterhouseCoopers organisation in Malaysia, each of which is a separate and independent legal entity. Please see www.pwc.com/structure for further details. Strictly Private and Confidential May 2014 Table of Contents Section Overview Page 1 The case for network sharing 1 2 Different types of network sharing 7 3 Global case studies 13 4 Key considerations for the Malaysian market 18 Section 1 The case for network sharing MCMC • Discussion On Network Sharing PwC 1 Section 1 – The case for network sharing Lower subscriber growth and declining ARPU levels are increasing the pressure on margins for Malaysian Telcos Low growth in subscribers Declining ARPU Pressure on EBIDTA Decreasing ARPU’s may lead to Increasing operating costs squeezing High penetration leading to stagnant revenue stagnation EBITDA margins subscriber growth rate; CAGR ~ 2% RM Mn Subscribers 3.2% 50% 54 49% 49% 46% 3.6% 46% 45% 45% 45% 52 41% 50 48 46 44 42 40 38 2011 2013 Maxis Digi Celcom Penetration 143% 146% 158% (%) Celcom Maxis Digi Market 2011 2012 2013 MCMC • Discussion On Network Sharing PwC Source: SKMM, C&M Pocket Book of Statistics 2013; CIA, The World Factbook Malaysia; 2 Maxis, Annual Report 2012; Digi, Annual Report 2012; Celcom, Annual Report 2012; Umobile, Annual Report 2012. Section 1 – The case for network sharing However, there is a need to invest on networks to cater to the increasing demand for capacity and to deploy new technologies like 4G LTE Demand for capacity 4G Deployment Growth in data leading to demand for • Operators are expected to expand capacity their 4G LTE services in the near future: Data CAGR: 4.5% - Maxis launched 4G LTE services Voice CAGR: ~0% Bn MYR during Jan 2013 Data - Celcom launched its 4G LTE Voice experience centers during Jan 2013 - Digi is expected to launch 4G LTE services by end of 2013 % of total 36% 39% 44% revenue MCMC • Discussion On Network Sharing PwC Source: SKMM, C&M Pocket Book of Statistics 2013; CIA, The World Factbook Malaysia; 3 Maxis, Annual Report 2012; Digi, Annual Report 2012; Celcom, Annual Report 2012; Umobile, Annual Report 2012. Section 1 – The case for network sharing Network sharing offers one of the highest potential for Telcos to improve margins and optimize future investments Potential Points to consider Expand Limited • 95% of population already under network Coverage coverage Increase Revenues Limited • Revenue shifting from Telcos to OTT Promote high players resulting in failure of monetization ARPU offerings of content • Incremental subscriber base is expected to be mostly low ARPU and rural areas Strategic levers High • Ability to deliver significant capex and to improve Share opex savings for existing and new network margins Infrastructure rollout Medium • Allows MNO’s to convert fixed cost into Outsource Reduce costs variable cost, thus managing cost operations performance • MNOs have already outsourced some of their non-core operations, reducing the incremental potential of this method Operational • Efficiency Limited MNOs have already implemented majority Improvement of cost saving measures MCMC • Discussion On Network Sharing PwC 4 Section 1 – The case for network sharing Globally other telecom operators have used network sharing as a way to optimize costs while growing the network • T Mobile + 3 UK (UK): • Telia + Tele 2 (Sweden) -Year: 2007 -Year: 2001 -Market shares: T-Mobile (24%), 3UK (5.4%) -Market shares: Telia (49%), Tele2 (29%) -Estimated Cost Savings: USD 2 Bn over 10 years -Mainly for 3G to satisfy roll out obligations (50% -Mainly for 3G but later extended to geographical investments in CAPEX) roaming • Airtel + Idea + Vodafone (India) -Year: 2007 • Orange + Yogio (Spain) -The largest tower sharing -Year: 2006 agreement with 70,000 towers -Five year agreement to improve coverage mainly in 3G • Cingular + T Mobile (USA) • Mediaset + TIM + Vodafone (Italy) -Year: 2003 -Year: 2006 - 2G Network sharing -Development of a DVB-H network in (geographical) Italy • Vodafone + Optus (Australia): -Year: 2004 for 3G only, 2013 for all network -Market shares: Vodafone (15%), Optus (30%) -Expected cost savings: $ 300 Mn in 5 years - Share towers and geographical roaming MCMC • Discussion On Network Sharing PwC 5 Section 1 – The case for network sharing Malaysian telecom market is at the same level of maturity as other markets where network sharing has already been implemented Malaysia Sweden US Australia UK India Penetration ~146% ~128% ~86% ~110% ~136% ~70% (2013) Major Major-Maxis, Telenor, Tele2 , AT&T, Verizon, Optus, Telstra, O2, Vodafone,3 Bharti Airtel, players Celcom , DiGi, Telia, Orange Cingular, Sprint, Vodafone mobile, Orange, Vodafone, Idea, YTL, Umobile, T-Mobile T Mobile Reliance Redtone Technologies 3G Rollout 4G Rollout 4G Rollout 4G Rollout 4G launched in 3G Rollout deployed 4G launched in 2013 4G launched in 2013 2014 Extent of Passive: Nascent Passive: Mature Passive: Mature Passive: Mature Passive: Mature Passive: Mature sharing Active: Nascent Active: Mature Active: Mature Active: Mature Active: Mature Active: Not present However, it has been late in implementing network sharing to the extent done in the mature markets MCMC • Discussion On Network Sharing PwC 6 Section 2 Different types of network sharing MCMC • Discussion On Network Sharing PwC 7 Section 2 – Different types of network sharing Different types of network sharing (1/3) Passive Site Sharing Operator 1 CN Operator 1 RAN • Masts, rooftop, cabinets, shelters etc. MSC/ BTS / VLR / HLR RNC • Physical space such as compound, SGSN Node B security alarms and passive technical facilities such as power supply, battery Operator 2 CN Operator 2 RAN backup etc. MSC / BTS / VLR / HLR RNC SGSN Node B Shared site and mast Passive Site sharing + Transmission sharing Operator 1 CN Operator 1 RAN • In addition to the above shared MSC/ BTS / transmission links, feeders, antennas VLR / HLR RNC SGSN Node B Operator 2 CN Operator 2 RAN MSC / BTS / VLR / HLR RNC SGSN Node B Shared site and mast MCMC • Discussion On Network Sharing PwC 8 Section 2 – Different types of network sharing Different types of network sharing (2/3) Multi Operator Ran Network (MORAN) • Mainstream industry approach to active sharing Operator 1 CN • RAN is shared but spectrum is not MSC/ shared (dedicated frequency bands) VLR / HLR SGSN Shared RAN • Device independent as it does not BTS / require any device support to choose the RNC Node B operator frequency Operator 2 CN • RNC and Node B are logically MSC / partitioned between sharing parties VLR / HLR Dedicated Frequencies Shared site and SGSN mast • Common site level parameters but operators can independently control cell level parameters Multi Operator Core Network (MOCN) • Specified in 3GPP Release 6 Operator 1 CN • Operators share both RNC and Node B MSC/ and pool their frequencies VLR / HLR • Spectrum sharing is a major limitation SGSN Shared RAN of this situation BTS / RNC • Device dependent as some devices need Node B Operator 2 CN the 3GPP Support to choose the different operator frequencies MSC / VLR / HLR Shared Frequencies Shared site and SGSN mast MCMC • Discussion On Network Sharing PwC 9 Section 2 – Different types of network sharing Different types of network sharing (3/3) Gateway Core Network (GWCN) Operator 1 CN • A multi operator core network in which MSC/ multiple core nodes are connected to HLR the same RNC and the CN nodes are SGSN Shared RAN operated by different operators GMSC/ BTS / RNC • Operators share part of the core VLR Node B Operator 2 CN network in addition to the RAN such as GMSC, VLR MSC / Shared site HLR Dedicated Frequencies SGSN and mast • Not as wide spread as the use of MORAN or MOCN Full network sharing (MVNO and Roaming) • In MVNO typically the operators would Operator 1 CN share the entire network but maintain HLR different HLR services Shared RAN • The MVNO could be leasing of capacity BTS / from wholesale resellers as well MSC / VLR RNC Node B • In case of roaming one operator roams Operator 2 CN on the network of the other operator HLR Dedicated Frequencies MCMC • Discussion On Network Sharing PwC 10 Section 2 – Different types of network sharing Summary of different network sharing techniques Pure site Site & MORAN MOCN Shared RAN w/ Full network sharing Transmission Gateway core sharing sharing Service Service Service Service Service Service Platform Platform Platform Platform Platform Service Service Service Service Platform Service Platform Platform Platform Platform Platform HLR HLR HLR HLR HLR HLR HLR HLR HLR HLR HLR HLR MSC / SGSN MSC / MSC / MSC / MSC / MSC / SGSN SGSN SGSN SGSN MSC / MSC / MSC / MSC / SGSN MSC / SGSN SGSN SGSN SGSN SGSN GMSC / VLR BSC / BSC / & SGSN RNC RNC BSC / BSC / BSC / RNC BSC / BSC / RNC RNC RNC RNC BSC / RNC BTS / BTS / BTS / Node B Node B BTS / BTS / Node B BTS / BTS / Node B Node B Node B BTS / Node B Node B Dedicated frequencies Shared frequency Passive Active Spectrum Transmission Commonly used techniques by large operators globally MCMC • Discussion On Network Sharing PwC Uncommon as it is difficult to implement 11 Commonly used by regional operators or small operators Section 2 – Different types of network sharing Each flavor has different benefits and potential cost savings for the operators Key benefits Potential Cost savings Passive • Capex and opex cost reduction