Even in rural Australia, sharing is resisted
Operators will often voluntarily address rural shortfall by agreeing to passive infrastructure sharing – there were 64 such agreements in place in Asia-Pacific in mid-2016, for instance – but tend to remain hostile to active RAN sharing, even thought that would deliver even greater capex and opex savings.
This is seen in Australia, despite that country’s huge interior representing one of the biggest challenges for affordable mobile broadband coverage. In 2011, incumbent Telstra ended its RAN sharing agreement with rival VHA (Vodafone Hutchison), with chief scientist Hugh Bradlow dismissing sharing as a “race to the bottom”, saying: “What happens with network sharing is that nobody is incentivized to invest in the networks but the marketing departments promise as much bandwidth as possible.” Telstra has been notable, in recent years, for differentiating itself by staying at the cutting edge of network technology, deploying successive 4G advances at an early stage and promising to be in the 5G vanguard too.
Last October, Telstra was attacking network sharing from another angle, fighting against government proposals to force it to open up its network to rivals, especially in rural areas. This would be for compulsory roaming rather than full RAN sharing, but this approach to universal coverage is just as mistrusted by many MNOs, as seen by the furious backlash of the UK’s four operators against government calls for mandatory rural roaming.
Telstra’s network reaches 98 per cent of the Australian population and it negotiates third party access on a commercial, negotiated basis. Two previous enquiries by the Australian competition watchdog had ruled that there was no need to regulate the charges, but rivals like Vodafone VHA have been claiming that the fees are too high, while rural communities and farmers want to have more than one choice of service provider.
These demands have resulted in a third enquiry by the competition regulator, the ACCC. It is considering "declaring" wholesale domestic mobile roaming services (making them compulsory on request at prices and terms set by the ACCC). Among 13 existing declared services in Australia are wholesale ADSL and superfast broadband access.
Telstra defends its network control
Telstra’s chairman, John Mullen, hit back at an October annual general meeting, saying: “Why would anyone invest in maintaining or upgrading their regional networks when they can hitch a ride on someone else’s network and there is no longer any competitive differentiation from greater network coverage?”
The operator believes that its investment in covering most of the population in such a difficult terrain is key to its competitive edge. Tony Warren, head of corporate affairs, told journalists that Telstra had invested huge amounts in that, and “at the moment if I am a customer who doesn't value coverage, but values price, I go with Vodafone. Australians value coverage and that's why they come to us."
He added: "We have invested in a whole lot of towers in the bush that are not economic in their own right. But because they have extended our coverage claim it has made sense for us to upgrade and extend. We made a choice to be the premium supplier with the best coverage and the best network. What Vodafone is trying to do is have that removed by regulation."
And CEO Andrew Penn added: “The principal advocate for mobile roaming is a foreign company [Vodafone] that has chosen not to invest to the extent that Telstra has. A foreign company that is very capable of investing and a foreign company that has argued against roaming in other markets where it suits it do so.” The second largest MNO in Australia, Optus, is also arguing that compulsory roaming and regulated pricing could pose a risk to investment in rural areas.
But consumer groups, and smaller operators like TPG, point out that rural dwellers are not actively choosing Telstra with its higher prices – they have no choice. Telstra’s prices are, on average, 15 per cent higher than its competitors."
Telstra opponents also point to the subsidies the incumbent has received for extending its rural network. For instance, it was awarded $40m to add 113 towers along regional highways in Western Australia in 2012, and $95m to build 430 new towers under the federal Mobile Black Spot program. It did add even larger sums of its own money (Telstra spent A$1.3bn on its network in 2015), but nevertheless, critics say the subsidies should have come with requirement to share the sites with others.
"Declaring domestic roaming would remove all the incentives for current record levels of investment in mobile infrastructure in regional areas," Optus' VP of corporate and regulatory affairs, David Epstein, said, adding that the SingTel-owned firm would not have spent its 2015 sum of A$1.7bn on mobile infrastructure “if it was going to be subjected to domestic roaming declaration”.
An ACCC preliminary ruling is expected early this year.
5G will flush out the sharing naysayers
While these rural roaming disputes seem a far cry from discussions of sharing dense pre-5G HetNets, the underlying themes are the same – the operator’s ability to differentiate through its coverage and the way it enhances and manages its network, versus the consumer’s ability to choose between different service providers and tariffs. That basic dilemma is there from 2G to 5G, and from urban to enterprise to rural networks. And as the mobile network supports more and more use cases, including specialized mobile-first activities in vertical markets and the Internet of Things, the choices will only get more complex.
AT&T’s Donovan argued that operators with very different commercial strategies – one focusing on simple daily communications, for instance, and another prioritizing critical medical systems — could not be effectively supported by the same network.
The answer to that, however, is not to turn away from sharing and wholesaling, but to embrace it. Flexible, on-demand wholesale platform supporting large numbers of specialized service providers is the way forward to ensure return on 5G investments. The density of 5G in some areas will absolutely require sharing – a shared or neutral host approach will be the only one possible in locations where hundreds of cells are needed per square kilometre. Yet there will, as Donovan said, be challenges when many viable 5G business models will revolve around supporting multiple types of service with very different requirements.
That will necessitate a shift towards a very flexible, software-driven architecture, in which the physical network will be far less of a differentiator in its own right. Instead, it will be made up of commoditized servers, and of dense cell sites with advanced antennas – a combination which will enable very high data rates as well as low power IoT processes, and flexible allocation of resources via network slicing.
There is very little case, in this sliced network, for multiple single-operator RANs. A huge pool of capacity – deployed, managed and sliced by one or more MNOs, by a wholesale third party or by a cloud host like Google or Amazon – will be more economical, power efficient and flexible.
Yet it is hard to imagine this vision becoming reality in many areas, if operators and regulators cannot get past the first hurdle of sharing a conventional 4G macro RAN effectively. Or at least, while they resist the shift to wholesale and utility networks which has already been seen in electricity, gas and even wireline broadband in many countries, the new flexible platforms will be built by someone else, and the rewards of 5G will be snapped up by non-MNOs.
Copyright © 2016, Wireless Watch
Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.