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Netherlands consults on joining the network sharing craze

The Netherlands Authority for Consumers and Markets (ACM) has launched a consultation to identify the pros and cons of a more collaborative approach in telecoms.

Like most markets around the world, the Dutch are trying to balance a disproportionate equation. Data tariffs getting cheaper every day, but the telcos are being asked to spend more on 5G and fibre networks. Although estimates vary, the cost of 5G networks could be in the region of 500 billion to $1 trillion globally, a significant amount to spend when the industry is attempting to compensate for shrinking revenues.

In this consultation, the Dutch authorities are attempting to introduce a more collaborative mindset to the telecoms industry, however this in itself must be balanced and measured against the preservation of a competitive landscape.

This consultation is slightly different from others around the world, accounting for the nuances of the Dutch telecoms market. It will focus on three areas:

  • The telcos collaboratively sourcing new sites for radio infrastructure, as the ACM notes there is a scarcity of available locations
  • Roaming agreements for 2G and 3G connectivity to compensate for the planned closure of these networks
  • Leasing or renting spectrum to regional businesses to offer localised services

One would hope the Dutch authorities come out of this consultation period with enthusiasm for a collaborative approach to delivering telecoms services, as the industry does need assistance to ensure is it sustainable in the long-term. That said, competition retention is a very important element.

Too little attention to competition create a potential scenario where the telecoms services are so similar, they effectively become commoditised. This would encourage a race to the bottom, slashing profitability, which in turn would force the telcos to adopt more strategies focused on operational efficiency. Soon enough, the telco industry could look like any other utility and innovation could be killed off in the pursuit of commoditised profits.

This is an extreme example of where the industry could end up, but it always important to remember the worst-case scenario. Elsewhere, the world does seem to be listening to the pleas of the telcos for assistance.

In the UK, a joint initiative between the four mobile network operators and the Government has been dubbed the Shared Rural Network (SRN). The SRN tackles the country’s most difficult ‘not spots’, in particular those where ROI is very difficult to realise, to build operator neutral passive infrastructure. Each operator is then free to place active equipment on the towers as it feels necessary. The aim is to consolidate the pain of civil engineering and planning permission into a single, collaborative effort.

The UK is successfully demonstrating passive infrastructure sharing, though industry lobby group the GSMA has said it is possible to go one step further without impacting competition too much. Sharing Radio Access Network (RAN) equipment would save the industry more money, while differentiation between services can be realised in the network core. Some markets might even be able to go further and have shared core agreements, though this seems like pushing the boat out too far and would head towards commoditisation.

Conversely, there are also regulators who have objected to network sharing agreements.

In the Czech Republic, O2 and T-Mobile developed a network sharing agreement, though Vodafone was excluded from the tie-up. This was given the green light by the national regulator, but it was vetoed by the European Commission.

Czech Republic 4G market share, end-2019 (thousands)
Telecoms operator Subscribers Market share
O2 3,128 29.3%
T-Mobile 4,569 43.6%
Vodafone 2,844 26.6%
Nordic Telecom 136 0.5%

Source: World Information Series, Mobile: Omdia Knowledge Centre

“Operators sharing networks generally benefits consumers in terms of faster roll out, cost savings and coverage in rural areas,” Commissioner Margrethe Vestager said at the time. “However, when there are signs that co-operative agreements may be harmful to consumers, it is our role to investigate these and ensure that markets indeed remain competitive.”

The issue which the Czech Republic faced was one of market dominance. As the third material player was frozen out and left alone, it could be deemed an unfair application of market position. Network sharing is a trend which is favoured by the European Commission, but in this example, Vodafone could have been squeezed out of the market, effectively bringing competition to the state of duopoly.

What is worth noting above all else is this is not a new idea. In 2012, Booz & Company suggested savings from infrastructure sharing could be as high as 40%, while cash-flow improvements could be as much as 31%, dependent on the deal. Two years earlier, consultancy Coleago suggested network deployment costs could be reduced by 30-40% with such partnerships in place. The difference today is the pressure the telcos are facing.

A decade ago, the telcos could still rely on revenues from SMS and voice, whereas data was still incredibly expensive in most markets. The 4G revolution was underway, though spectrum was reasonably priced, and the telecoms operators did not have to worry about the pressures of delivering full-fibre networks at the same time.

While competition considerations certainly have to be included in the equation, it becomes difficult to see any sustainable route forward without factoring in some sort of network sharing agreement. The margins are too tight in the telecoms space nowadays to consider otherwise, and in the preservation of competition and innovation, collaboration is a key component.

One would hope the Dutch come out of this consultation with enthusiasm for the trend which can make a genuine impact on profitability, and in turn, reinvestment in network infrastructure.

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