There is little chance of the t elecoms industry becoming less capital intensive. At the forefront of technology development and increasingly in demand by new sectors, telecoms operators face a long future of ongoing upgrades and investments in their networks and services. As BMI has pointed out on a number of occasions, there are a number of strategies that can be pursued such as merging to gain scale or building strategic partnerships that ensure competition remains. Operators must find ways to keep costs low as competition and consumer demand put pressure on prices.
Network Sharing A Popular Option
Of the options available to operators, network sharing has been generally popular in Central and Eastern Europe (CEE). A key advantage to this is that there is usually little regulatory objection to the move, as operations remain separate ensuring competition continues. Operators have pursued network sharing opportunities, particularly around the expansion of data networks, allowing faster roll-out of infrastructure and coverage requirements reached sooner. For subscribers, there is no real impact on their service but operators have considerably reduced costs.
With operators acquiring 4G licences and spectrum, they now face the cost of building new networks, or developing their existing infrastructure where possible. Key markets across the region have already auctioned 4G licences and operators are quick to announce their launches to take advantage of the expected growth in the market. Sharing the cost of rolling out infrastructure and also maintaining the network makes 4G roll outs more viable, ensuring operators can recoup the infrastructure costs more quickly. Operators have often pursued network sharing deals in previous years, though only Vodafone and O2 in the Czech Republic stand out so far in 2013.
Despite little to link Spain's Telefónica and Russia's MegaFon, the latter joined Telefónica's Partners Program in June to take advantage of scale. An existing regional deal between incumbents France Telecom-Orange and Deutsche Telekom allows the companies to jointly procure equipment for their networks, using economies of scale to keep costs low. These partnerships aim to keep costs down through stronger bargaining power. Operators could potentially lose a competitive edge if their rivals have the same offer or network quality, but the importance of content and network speed overrides these concerns.
Such partnerships also have implications for smaller players, which can benefit from expertise of a larger partner. The bigger company generates new income from selling already developed products to a wider audience, as in the case of Vodafone and Polkomtel in Poland.
Tower Sales On The Way
Emerging markets in Asia, Latin America and Africa have been quicker on the tower sales bandwagon. Selling off infrastructure and concentrating on customers and products has a number of advantages. In CEE, this has not yet taken off. Russia's VimpelCom expects to sell its towers in Moscow in 2014, while Latvia's Bite Group has plans to sell its own towers subsidiary.
In many ways, selling towers is an extension of the previous trend for managed services contracts, whereby operators would tender the management of their networks to companies such as Ericsson , Huawei and Nokia Solutions and Networks (previously Nokia Siemens Networks), many of which had built the networks in the first place. The managed services contracts - usually agreed for a medium term contract - also allowed operators to concentrate their management efforts on customer satisfaction and product offerings. As managed service contracts end, BMI sees greater potential for tower sales across CEE, although it is not a near-term trend.
Network pressures will continue and operators will need to keep finding new solutions to keep costs manageable while facing the uphill battle of trying to get customers to spend more. In addition to scale through mergers and acquisition (see ' CEE A Hotbed For Telecoms Deals ', August 6), BMI believes operators will seek partnerships that help them manage costs and remain competitive.
|Aug-13||Czech Republic||Vodafone and Telefónica O2 plan to share their mobile networks to make savings on their network spending. O2 already has a sharing agreement with T-Mobile in the country covering 1,000 3G base stations.|
|Jul-13||Croatia||T-Hrvatski Telekom (T-HT) outlined plans to take operational and strategic control of its fixed-line rival Optima Telekom. The move is designed to keep Optima in play and to reposition the company for a return to growth, allowing T-HT to manage the company at arm's length from its dominant fixed-line business. Competition regulator AZTN rejected the proposal days later and no further news was made available.|
|Jul-13||Romania||Orange and Vodafone agreed to share their network infrastructure as they pursue cost-led operating efficiencies and seek returns on investment in advanced networks.|
|Jun-13||Russia||MegaFon partnered with Spain's Telefónica to enable it to benefit from better buying power and technical knowledge provided by the Spanish operator. The deal is part of Telefónica's Partners Program which also includes China Unicom and Telecom Italia. The deal enables business clients of both companies to benefit from access abroad, helping to build stronger ties with major enterprise clients.|
|Jun-13||Russia||VimpelCom plans to sell off its Moscow mobile towers and has several potential buyers from infrastructure-focused groups that are eyeing up its portfolio. Legal issues are expected to drag out the sale until 2014, although it was previously suggested that it would happen in Q413. The motivation for that sale has been driven by the rising demand for 4G services.|
|May-13||Slovenia||Satellite operator Eutelsat Communications and Telekom Slovenije signed an agreement to offer high-speed internet to nearly 90,000 homes that are still not served with broadband networks. The new satellite broadband service will allow Telekom Slovenije to offer internet access to the majority of households in rural areas, with download and upload speeds of up to 18Mbps and 6Mbps, respectively. The service can be accessed with a smaller satellite dish and modem.|
|Mar-13||Poland||Vodafone established a non-equity Partner Market agreement with Polkomtel. Vodafone said its multinational customers will benefit from the agreement with the addition of Poland to their existing contracts for international managed services. Polkomtel's customers will benefit from access to Vodafone best practice and to joint products and services for business and consumer customers.|
|Mar-13||Belarus||MTS Belarus and Belarusian Cloud Technologies (beCloud) are considering plans to jointly develop LTE technology. MTS' director, Vladimir Karpovich, believes demand for LTE services across the country will rise. Karpovich added LTE technology could be especially useful for achieving full coverage in rural areas.|