Greater levels of passive, and even active, infrastructure sharing are being driven by the looming costs of 5G, the failure of the industry to reduce those significantly in time for the first wave of build-out and the difficulty of generating significantly higher revenues. To make it worse for operators in some markets, there is also higher competition. Some will come from cable operators, webscalers or private enterprise deployers leveraging shared or specialist spectrum to deploy 5G in high value locations or verticals, squeezing MNOs’ addressable markets. And some will come from regulatory moves to increase competition by introducing new conventional players.
Italy is one example of a market where hard-pressed operators sought consolidation in order to improve their economics, only to find themselves in an even more competitive market. Hutchison acquired the fourth MNO, Wind, to merge with its own Italian subsidiary, to form Wind Tre, now the market leader. But a condition of that merger was that spectrum and network assets were divested to a new entrant, the disruptive Iliad of France, which had already wreaked havoc in its home country with Free Mobile.
Now broadband provider Fastweb is to launch a fifth mobile network, increasing the pressure on Telecom Italia (TIM), Vodafone and Wind Tre, which have already been introducing new tariffs and engaging in price wars in order to fend off Iliad. A race to the bottom in prices will not be sustainable in a market where the operators plan to start 5G services next year. So we can expect a significant increase in asset sharing, and possible further consolidation.
Vodafone has already announced a network sharing deal with TIM, mirroring those it has in other highly competitive European markets – with Orange in Spain and Telefónica in the UK. The company is also unlocking value and moving costs off its balance sheet by moving its towers into a new operation across its European territories, and is likely to seek a buyer or new partner for this.
Cost-cutting will not neutralize the effect that Iliad has had on the older MNOs in its first year of operation – TIM has lost 1.2m mobile users and Vodafone 1.4m in the past year, while Wind Tre lost 2.4m in 2018.
But it may make it more viable for them to invest in 5G and start to build an alternative service proposition rather than continue to cut prices. Sharing deals can also help them to leverage their superior physical and spectrum assets to the maximum, mitigating the impact of the new players’ greater agility and lack of legacy. Iliad had signed up 3.3m customers as of the end of March 2019. Meanwhile, TIM saw mobile service revenues fall by 9.7% year-on-year in the second quarter of this year, while Vodafone’s fell by 7.4%. The price wars saw ARPU fall by 8% in the same quarter, at TIM, to €12.5 ($13.9), and 2.2% at Vodafone, to €13.6 ($15.2). Wind Tre has stopped publishing these figures.
Sharing is the best route to improving these dismal results, since the regulators are hostile to consolidation and could surround any further merger deals with the kind of conditions that ushered Iliad in. TIM and Vodafone announced an expanded RAN sharing deal in July and will place their towers into a joint venture. Iliad has sold its own towers, including about 2,200 in Italy, to pure-play towerco Cellnex. Wind Tre is going to share 5G network build-out with the newcomer Fastweb.
But as such alliances increasingly include active as well as passive infrastructure, they are not safe from regulatory disapproval either. For instance, earlier this month the European Commission objected to a network sharing deal between Deutsche Telekom and Telefónica in the Czech Republic, on the grounds that it “restricts competition in breach of EU antitrust rules” because the two operators involved are the biggest two in the market.
Will Fastweb make life even harder for the Italian operators?
Having gained Italy’s fifth mobile licence last month, the broadband operator plans to build its first network in 40 MHz of 3.5 GHz spectrum, which it bought in a private purchase from Tiscali, and it also has 200 MHz of 26 GHz spectrum, which it bought in the 5G auction a year ago.
Fastweb is unlikely to be as disruptive from a marketing point of view as Iliad, especially since it already has an MVNO – this gives it a brand recognition advantage over a completely new entrant but also means it is a known quantity, and so far a small mobile player. Last year, it added almost 350,000 mobile customers to make a total of 1.63m.
However, if it makes good decisions in terms of sharing its networks, keeping its capex and opex low and adopting flexible new architectures ahead of its rivals, it could join the band of resource-light but agile challengers which are starting to shift the landscape of Europe’s mobile telecoms – Iliad itself, some of the Three subsidiaries and others are rewriting the rule that success in a saturated market means spending the most money on the biggest network.
Fastweb has already said the 5G network it will share with Wind Tre will macro and small cells, built by both operators, and connected through dark fiber from Fastweb, to be deployed nationwide, with a targeted coverage of 90% of the population by 2026”.
Fastweb – which is owned by Swisscom, itself a far more creative thinker in the 5G era than it has been in earlier generations – spent only $778m in capex last year and has just 2,500 staff. Compare that to Telecom Italia, which spent €5.6bn ($6.3bn), including spectrum acquisition, and has almost 48,000 people. Yet the incumbent is loaded down by debt, is in the midst of endless restructurings and shareholder feuds, and has consistently failed to reinvent itself as an agile MNO with a modern architecture, despite its interesting and extensive R&D in new platforms and its trials of Cloud-RAN and other key 5G enablers.
Fastweb has the advantage of a fiber network for backhaul and fronthaul, and a home broadband base. It is likely to use 5G initially to reduce the cost of getting fast broadband to each residence and to fill gaps in its fixed network with its millimeter wave spectrum. But soon enough, the value in such an offering will have to include full mobile services and quad play options too, at which point it will be competing with the MNOs, with a far lower cost base, thanks to its sharing deals and greenfield mobile network.
The developments in Italy reveal a wider trend – classic MNOs may be huddling together for warmth as their established business models run out of steam, but wireline operators, especially from the cable sector, and some other players such as neutral hosts, industrial providers and broadcasters are keen to add mobile connectivity to their arsenal.
They often want more control than they would get from an MVNO deal, and want to deploy different types of networks, and the fiber providers are able to achieve different economics to those of the MNOs by leveraging their wireline and WiFi networks, and their penetration of homes and enterprises, to lower costs and support affordable new services.
“We have always been an operator on the fixed network with a latest generation fiber network,” said CEO Alberto Calcagno. “Now we also become mobile, relying on all our infrastructure assets to play a leading role in view of the arrival of 5G.”
It will certainly need those efficiencies to make any dent on the crowded Italian market without taking on unacceptable levels of losses or debt.