Plana

Network Sharing
- Savings and Competitive Effects Prepared by Northstream for The Swedish National Post and Telecom
Agency (Post- och Telestyrelsen)

30 September 2001
Northstream AB
www.northstream.se
+46 8 564 84 800

Network sharing study

2 (48)

Executive summary
Northstream strongly believes in the benefits of network sharing. This study
has tried to show that the benefitsare large and measurable and much more
significant than the 20-50% network cost savings would suggest. The downside
risk of a reduction in competition on the other hand is much less certain. The
evolution to 3G changes the competitive landscape in a way that makes it much
harder for operators to collude. If it wasn’t for the high barriers to entry for the
3G market, there would be littlereason to fear for a lack of competition.
Network sharing precisely takes care of this problem by lowering the upfront
investment costs.
Today the mobile industry is facing a big problem. Large investments in 3G
networks and licenses have been made or are about to be made soon while
revenues from 3G are still some time away. Network sharing may provide the cure
the industry needs. The goal ofnetwork sharing is to reduce costs associated with
setting up a 3G mobile network by sharing facilities between multiple mobile
operators. There are many ways of network sharing ranging from sharing of sites
and facilities to the creation of a single network. Operators and regulators face a
difficult trade-off between cost reduction and network limitation. Far reaching
network-sharing agreementswill allow operators to save a lot of costs but too
much sharing will reduce their ability to differentiate from their competitors.
Although network sharing is not new, there has been an increased awareness
lately. Mounting concern of the viability of the business cases for 3G has driven
this new interest. The situation is especially difficult for new entrants. Delays in 3G
deployments,which have recently been indicated by the industry, will mean that
revenues will appear later than expected and that the series of negative cash flows
for the new 3G-network operator will be prolonged.
Network sharing can reduce both operating expenditure and capital investments.
Savings of 20 to 50% are mentioned by industry analysts. These savings will be
especially significant in the shortterm and might help to restore confidence in the
industry. More importantly the savings are on fixed costs and will therefore
dramatically reduce the operating leverage of the business. Lower costs will also
reduce the operator’s need for external financing which in turn could reduce the
financial leverage. The result will be a considerable reduction in the risk of the 3G
business. This isespecially important for new entrants with little or no revenues.
In the longer term the effect of network sharing will be less significant. Expenses
related to subscriber acquisition and subscriber retention are expected to be the
main cost items and operators will put more emphasis on differentiation and
flexibility. Besides savings, other potential benefits are a faster roll-out, a bettergeographical coverage as well as reduced number of base station antennas which
would help to reduce both health and environmental concerns.

Northstream AB
http://www.northstream.se

September 2001

Network sharing study

3 (48)

This report will show that regulators face a difficult trade-off in regulating
network sharing. Network sharing does not exclude competition and this paper
willshow how different ways of network sharing affect the ways that operators
will compete. On the other hand too much network sharing might still reduce
competition and lead to higher prices and/or reduced quality for consumers. If on
the other hand the regulation of network sharing is too restricted, mobile operators
will incur unnecessary expenses and operate below optimal efficiency. This...