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12 July 2022

Economic crisis will intensify operator rethink of 5G asset ownership 

Special Report: 5G co-investments 


The global economic crisis, including rising energy bills, looming recession, and reduced consumer income, will only intensify the debate about who should pay for 5G, and future 6G, infrastructure. Large operators are lobbying in Europe and elsewhere for Internet giants to take a bigger share of the cost of networks, since they monetize them successfully. But behind the politicking, economic downturn will focus telecoms executives’ minds on their ongoing identity crisis. 


In the build-out of the next waves of 5G – just as in fiber and edge cloud deployments – operators must decide whether they are utilities and infrastructure owners, whose value and growth potential lies in control of superior assets from spectrum to sites; or whether they aim to be digital services providers, in which case there will be a reduced need to differentiate based on their network assets, and they should aim to reduce those casts drastically while investing in applications and marketing. 


For some operators, that second course will be focused on the enterprise opportunity, which various studies – including a new one from the UK (see below) – indicate is being stimulated by 5G capabilities, even if real revenues for telcos are materializing less rapidly and certainly than previously hoped.  


Most operators, of course, sit somewhere between the DSP and the infraco roles, but there has been a received wisdom that any ambitious telco must climb up the network stack towards applications and services, as that is where growth will lie. However, going up the stack does not necessarily mean going up the value chain.  


The growth potential does lie in services for enterprises and advanced consumers, but a limited number of operators have ever succeeded in becoming truly competitive in this market against the webscale, over-the-top and content providers. And stock market valuations have favored infrastructure assets for years (the hyperscalers derive value from their huge physical assets more than their services, since the former are far more defendable and hard to emulate). The flight of the markets to infrastructure stocks is always accelerated by recession, so it may prove short-term for operators to be casting off their towers and other infrastructure so hastily. It unlocks value for them, but may lead them without one of their key differentiating assets, and struggling with their third or fourth failed attempt to transform into a DSP. 


Whether operators choose to be infra-centric or asset-light, they are likely to seek co-investment partnerships with a far wider range of organizations in a bid to achieve maximum cost-efficiency in a time of economic pressure. There are increasing signs of cooperation between groups that have traditionally been at war over spectrum assets – notably telcos working with satellite businesses, and with broadcasters. In both cases, convergence between 5G and these other networks – driven, in the latter case, by 5G Broadcast – may throw up new growth opportunities for operators, whether these lie in infrastructure revenues or services. 


Power utilities are also increasingly popular partners for operators, and as they seek creative approaches to energy efficiency, this trend may intensify. It has been particularly visible in Japan, where Rakuten has agreements with multiple power companies to help reduce the cost of deploying 5G base stations, and has announced a new one with Tepco. NTT Docomo, KDDI and Rakuten also have a mesh of build-out sharing deals and alliances, many of which also include power companies, and a similar trend is starting to be seen in China.  


The need to reduce costs, while awaiting the hoped-for commercial transformation promised by 5G, is also likely to drive operators to cooperate with one another more intensively. Again, China and Japan have led the way in network sharing deals, and some major operators are starting to share spectrum too.  


Where sharing is government-driven, as in Mexico, Australia and Malaysia, the alliances tend to be controversial and poorly supported, but in other markets, the operators are leading the way from their own self-interest. In Russia, where war and geopolitical isolation will put operators under even greater pressure than elsewhere, all four major MNOs have now invested in a vehicle focused on spectrum sharing.  


As in tower divestment, operators need to be sure they don’t sacrifice valuable assets for short term relief from economic woes, but at least the current crises are likely to force a much-needed rethink of network investment and ownership for the 2020s.