In the recessionary climate of Europe, network sharing is taking an important role in many operators’ plans for 3G expansion and even 4G build-out. In a report from ratings firm Moody’s, it says the tough regulatory and operating environment is likely to provoke a further 1.5% revenue decline among European cellcos this year, and flat growth in 2014.
But of course, increased capex is required to upgrade networks and meet consumer demand for broadband services. ‘Alternative ways to acquire network capacity enhancements will help to ease the capex burden for European telcos in the short term. We expect a growing number of telcos will enter network sharing agreements or look at other ways to invest without further compromising their already strained balance sheets,’ wrote report author Carlos Winzer, an SVP at Moody’s.
While most of these plans are credit positive in the short term because they are an efficient way to deploy limited cash investment, Moody’s believes they are only temporary measures that will not provide the level of network investment needed for most cellcos’ longer term revenue needs. ‘In the long term, we see more merit in telcos controlling their own networks and making greater investment. We also expect regulatory pressure to ease or at least support industry consolidation and companies that are willing to invest in the network through adequate returns on investment,’ added Winzer.
It also believes that, while spinning off a mobile or fixed network unit may generate cash, it will only be adopted as a last resort as controlling the access network gives the incumbent operator significant competitive advantage. A notable exception is Telecom Italia, which has its own set of reasons, including regulatory.
Some of the latest deals for RAN sharing in Europe have been announced in the Netherlands, Spain and the Czech Republic. The Dutch cellcos T-Mobile NL and Tele2 NL will share the former’s antennas om rooftops or towers, although each will continue to install its own network equipment at each site.
Tele2 NL has also extended its MVNO agreement with the German-owned operator for 2G and 3G services for a period of five years, although the firm will develop its own 4G network during that time.
Gunther Vogelpoel, CEO of Tele2 NL, commented: ‘This is a milestone in our continued path to challenge the Dutch telecom market. We can now incorporate the access to the T-Mobile sites in the total rollout planning, which enables Tele2 to efficiently build a nationwide 4G-network.’
In Spain, Telefonica has announced an LTE sharing alliance with TeliaSonera’s subsidiary Yoigo. However, this has been heavily criticized by Orange Spain, which has petitioned the regulator to probe the deal.
For Yoigo, the transaction gives it the ability to offer Telefonica’s fibrr broadband and TV services, and it has also extended its deal to sell the incumbent’s national 2G and 3G services. Yoigo counts around 3.2m subscribers, or 6.7% of the market, and launched LTE earlier this year. The company expects to cover 48% of the population with LTE by the end of the year.
For Telefonica, the deal finally gives it the chance to offer 4G services ‘ it is the country’s only cellco not to launch LTE so far, as it waits for its spectrum to be vacated by broadcasters. It is likely to build its own 4G network in time, so the Yoigo deal may prove to be a stopgap. As part of the agreement, the two cellcos agreed to sell their towers to Spanish conglomerate Abertis for €385m ($511m).
Finally, Czech operators Telefonica O2 CR and Vodafone CR are reported to be close to signing an infrastructure sharing deal that could save O2 up to $201m over a period of 10-15 years, while the Vodafone unit would pay it up to €40m too.