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5 March 2019

Pressurized Italian MNOs adopt RAN sharing to reduce 5G costs

Necessity is often the mother of invention, and Telecom Italia’s financial pressures and ownership quarrels are pushing it towards radical cost-cutting in its networks. Some of its tactics, such as network sharing with Vodafone and cooperation with Open Fiber, highlight the way all operators will have to run their future networks, not just those with debt mountains.

The economics of 5G will make dwindling sense if there is not more focus on infrastructure sharing and convergence, with the distant but logical end result of splitting a wholesale, scaled-up ‘pipe’ from the service providers. Long before that day, operators can achieve significantly better cost bases if they abandon their instinctive hostility to sharing, and it will better for the whole industry if they start to do this proactively, and not just when under intense pressure like TIM.

The Italian incumbent announced its turnaround plan just before Mobile World Congress, along with full year results which saw a 6% fall in like-for-like EBITDA in the home market, where TIM has been going through a painful restructuring at the same time as facing a new mobile competitor in the disruptive shape of French player Iliad. TIM reduced its headcount by 2.6%, or 1,528 jobs, last year. Its revenues were down just 0.5% to €19.2bn ($21.8bn), while organic earnings were down 3.4% to €8.1bn ($9.2bn). Its net debt is huge at €25.3bn ($28.7bn), and it has incurred new fees of €2.4bn ($2.7bn) for 5G spectrum, acquired in the recent auction. Overall, however, it has cut its capex budget significantly, spending 15% less in 2018 than 2017 (excluding the spectrum licences), at €4.2bn ($4.8bn). It said it could reduce capex because its 4G and fiber-to-the-kerb build-outs were almost finished, covering 99% and 80% of the population respectively.

For 5G, which it claims it will start deploying next year, it is looking to a lower cost approach enabled by sharing. Not only will it share passive infrastructure, but also active equipment, in its new agreement with Vodafone Italia, which is also facing the financial pressures of a new entrant, and the auction. It is interesting that Vodafone is pursuing a RAN sharing deal in Italy, while in the UK it is going to rely less on its sharing arrangements with O2 for 5G than it did in 4G.

Telecom Italia and Vodafone said they would enhance their respective transmission networks to cope with the additional traffic from a shared RAN and from 5G, and said they were reviewing whether to extend the deal to existing 4G networks as well as future roll-outs. On the passive infrastructure side, the two companies already share about 10,000 sites, or 45% of their total footprint, and are now evaluating the option of spinning off all 22,000 towers into a separate venture – a move that operators have made in many countries to get towers off their balance sheets and increase efficiencies.

TIM has also started talks with Open Fiber, the government-backed broadband operator, about partnership options including a “full business combination on fixed network”. Some TIM shareholders want the company to spin off its fixed line network and operations and merge those with Open Fiber. The current CEO, Luigi Gubitosi, is pursuing this idea with the support of activist investor Elliott, but faces opposition from Vivendi, the telco’s largest single shareholder.

Other tactics to hit cost reduction targets of 8% include the sale of the Persidera, a TV business; consolidation of legacy assets such as data centers and exchanges; and adoption of AI to automate networks and other operations.

Speaking of the Vodafone RAN sharing deal, Gubitosi said: “This partnership will allow our customers to enter the 5G revolution faster and deeper, while at the same time making the best use of both companies’ resources. We believe that network sharing is key to do more, efficiently and better for the benefit of our clients and all stakeholders, in view of the process of change that will be triggered by the launch of 5G in the years to come and that will be paramount for the development and digitalization of our country.”