The wireless industry has been undoubtedly pleased by the Obama administration's endorsement of the FCC recommendation to make an additional 500 MHz of spectrum available for wireless broadband in the United States over the next ten years. Increased spectrum availability for wireless broadband is a top requirement to accommodate data traffic growth. According to Cisco's VNI index, data traffic will grow 16 times and video traffic 20 times by 2014 wireless broadband. The introduction of new wireless interfaces like HSPA+, WiMAX or LTE will bring some relief, but may be at best capable of accommodating half of the additional traffic due to increased spectrum efficiency.
However, to keep up with data demand and to avoid massive investment, operators in the U.S. and in most other countries will need to do more than roll out an LTE network in the spectrum they currently have. Infrastructure sharing is one of the tools that operators have to increase utilization of their spectrum assets, provide better coverage and throughput to their customers, and to reduce capex and opex.
To date, European operators have been the keenest on network sharing, possibly because they are subject to stricter coverage requirements than operators in other countries. As a result they may be more willing to leave aside competitive worries to focus on the cost-saving opportunities of network sharing.
In the U.S., infrastructure sharing has recently started to attract the operators' attention. Deploying 4G networks that provide sufficient capacity will require a large, sustained capex and opex increase. Network efficiency is no longer going to be an option, but a condition to retain profitability.
What is shared?
There is a wide range of network sharing options, ranging from cell site (passive sharing), to backhaul link sharing, to a more extensive RAN equipment and frequency sharing (active sharing). While active sharing provides the biggest benefits in terms of cost reduction, improved coverage and spectrum efficiency, it is also the most difficult to establish and implement as it requires a deeper integration between operators. Regulatory limitations, competitive environment, spectrum availability, and pressure on network capacity can limit the feasibility of active sharing agreements.
Cost saving has been the main driver to infrastructure sharing to date. The Vodafone Group, one of the strongest proponents of passive and active infrastructure sharing with plans or agreements in Spain, Italy, the U.K. and India, estimates that infrastructure sharing will result in 5 percent to 25 percent RAN cost savings over the medium term. With RAN costs accounting for 20 percent to 40 percent of an operator's expenditure, infrastructure sharing can bring in substantial benefits.
However, there are other drivers towards infrastructure sharing that have started to play an increasingly larger role. The first is spectrum allocations. In many countries, spectrum allocations are too small for operators to provide sufficient capacity to their users in the mid-term. In the recent BWA action in India, each operator received 20 MHz. This is an impressive increase over previous spectrum allocations in the country, but it is not sufficient to provide a true mobile broadband service to dense areas. In such environments, active infrastructure sharing agreements allow operators to pull resources together, and use their spectrum assets more efficiently, through a more effective network planning and deployment that maximizes network coverage and capacity.
In most countries, regulators are eager to issue a high number of licenses to boost competition. While this approach works for networks where voice traffic dominate (and the overall traffic levels are low), it is inadequate for wireless broadband technologies. Issuing too many licenses creates a fragmented competitive environment, where too many operators have to build a separate network and compete for the same addressable market. The increased cost basis may result very aggressive price competition that produces unsustainable margins for most operators, thus effectively reducing competition as this may force some of the operators go out of business. Where this is avoided, the increased cost of providing services is passed onto higher prices for subscribers. In these markets, infrastructure sharing can become a way to redress a regulatory-induced inefficiency.
Extended coverage is another driver to infrastructure sharing. In urban areas with high demand, operators are unlikely to share their spectrum resources with their competitors, as they are a core market differentiator. However, in rural and many suburban areas, operators want to be able to offer reliable coverage and robust service, but they may be able to do so even if they share the network with another operator. Or, by combining resources, two operators can share a single network that provides better coverage and performance than two overlapping networks.
Will infrastructure sharing become more common?
In a word, yes. The process is already well underway in Europe and emerging in Asia. In the U.S. there are encouraging signs.
Verizon has recently offered to lease LTE spectrum to rural carriers which would sell the service in rural areas. Roaming agreements will ensure that both Verizon and the rural carriers can both leverage the network for their subscribers, while retaining a differentiated service proposition for their prospective subscribers. Verizon will benefit from coverage in areas that are not targeted by current deployment plans and where spectrum would otherwise remain unused. Rural operators will have the access to spectrum that, because of their size and financial resources, they could not have been able to secure.
Clearwire arrangements with Sprint and Comcast to market services over the same network to different market segments can also be seen as a form of infrastructure sharing. Clearwire's massive spectrum assets are ideally suited--and required to achieve efficient spectrum use--for active infrastructure sharing. Neither Clearwire, Sprint nor Comcast could independently use all the 2.5 GHz spectrum that Clearwire controls. By sharing the network, the deployment costs can be effectively spread out over a wider consumer base. Indeed, there is room for expansion of the current network sharing arrangements to include additional operators. Infrastructure sharing opportunities exist with regional and rural WiMAX operators, which have spectrum holdings in the 2.5 GHz band and already operate a fragmented but successful set of WiMAX networks.
From a network perspective, T-Mobile USA would be an excellent candidate for infrastructure sharing with Clearwire (especially if Clearwire will transition to TD-LTE as it seems likely), but in the current competitive environment there is effectively no scope for such partnership to succeed. T-Mobile has been rumored to be discussing infrastructure-sharing opportunities with Harbinger, but this is still a highly speculative opportunity, given the uncertainty that Harbinger will be able to attract sufficient funding to roll out the network.
The challenges of sharing
On slide decks and in financial spreadsheets, infrastructure sharing is compelling. The challenge is to implement it successfully in the real world, where operators not only compete for the same subscribers, but also have different approaches to network planning, use different vendors, and manage their networks differently. Sharing their infrastructure require a delicate intervention to ensure that their partnership is sustainable and acceptable to all parties, that equally benefits all, and that it is transparent. 4G provides a fertile ground, as many operators within the same market have similar timelines, requirements, and plans. Furthermore, 4G networks give operators more powerful tools to manage traffic on their networks, which can translate in more flexibility and control over how active infrastructure sharing may be implemented.
Monica Paolini is the founder and president of Senza Fili Consulting and can be contacted at [email protected]. Senza Fili Consulting provides expert advisory services on wireless data technologies and services.