LightSquared’s difficult choice – reducing 4G mobile network costs by whatever means necessary

Press reports that LightSquared may be considering ditching its managed services deal with Nokia Siemens Networks in favour of a network sharing deal with Sprint Nextel raises important issues about what mix of network consolidation and outsourcing is most appropriate for the US market, or any advanced mobile market for that matter.

Mobile operators in the US and elsewhere are under considerable pressure to modernize and maintain capital-intensive mobile broadband networks in a way that does not outstrip revenues. Investing in existing networks yet alone rolling out 4G ones will be expensive.

This calls for the consolidation of operations at one level or another, whether it be simply national roaming, wholesale arrangements, network-sharing or full-integration. It also calls for greater outsourcing of the operational processes associated with running a network.

We will continue to see increasing pressure towards market consolidation. Going forward it is difficult to see how many developed markets will be able to sustain more than two or three network operators.

It is worth stressing here that is network operations we’re talking about as there is plenty of room for competition at a services or retail level whether it be in the form of sub-brands or MVNOs. It is the number of separate networks that is the issue.

What is less clear cut is the optimal path towards greater consolidation as there are plenty of variations on wholesaling, network sharing and outsourcing that can be used to help to drive out costs and act as a stepping stone towards fewer networks.

The announcement earlier this week that Yota will roll out an LTE wholesale network in Russia on behalf of the major mobile operators shows what pressure there is to move into uncharted territory to make 4G happen, even if in this instance we do need to keep in mind that regulatory pressures in the Russian market are different to those in the US.

If Sprint were to go ahead with the LightSquared network sharing arrangement as has been suggested in the press then it would score a first in the US not just on the network sharing but also outsourcing fronts as Sprint already has a managed services contract with Ericsson. The change of strategy would be a blow for Nokia Siemens Networks rather than the managed services model per se as outsourcing and sharing can be combined. If anything active network sharing examples to date suggest that is often useful to have a third party as a neutral arbiter.

Whatever arrangement LightSquared finally settles on, what is clear is the transition to 4G will drive fundamental structural changes not just in the US market but in others as well.

The seventh annual LTE World Summit takes place in Amsterdam on 17th – 18th May.

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