Network sharing - Future of telecom

The day Vodafone and Telefonica made their intentions of sharing 3G infrastructure public, everybody has started talking about passive network sharing and how fast will we see consolidation in this market...Like anyone else, mine will also be a guess but this deals is certainly a step in the right direction...For too long, service providers have worked inefficiently and havent really utilized their infrastrucutre judiciously. This deal might just break the jinx.

One wonders the real reason for this move. Would these companies have taken this route had we still living in the markets of 2007 where money was cheap and flush...So is this because of money markets still not showing any signs of getting relaxed or is it because execs have seen the real opportunity to improve the efficiency....I think its probably because of latter due to former. That is execs facing cruch of cash have started identifying opportunities where operational efficiencies can be squeezed out...

Let me talk a little bit about infrastructure sharing - There are two types of sharing. First one is active infrastructure sharing which involves sharing of radio frequency...This happens in the case of MVNOs. The other type of sharing is passive infrastructure sharing which involves sharing of the physical sites that is towers. This is where we are going to see majority of action initially. Companies can save immensely on leasing and rental costs and operational costs of maintaining the infrastructure. This is where the focus is....

Using the latter sharing, companies can expand coverage more rapidly. Moreover the environment also benefits from less infrastructure and lower power requirements. As we see goverments around the world taking more stringent measures to help the environment, mobile companies will soon be under the radar of regulators to tap any opportunities to help the environment and thats when this kind of sharing will gather momentum...

Obviously there are innumerable advantages of network sharing but companies should do it very carefully...As network coverage was the prime USP (differentiator) for companies, they would have to learn with common coverage and focus on creating differentiation in providing services. Moreover netco will have to create infrastructure whereever serv co would ask net co to. Companies would have to draft very clear guidelines and SLAs around this...

In the end, there are clear signs and opportunities for companies to go for network sharing. But it should be done very carefully and properly.

Infrastructure in the telecom business

When one looks at any infrastructure in the country, mostly it is owned by the government or there are just two infrastructure providers...We can take innumerable examples and we will find this case everywhere...

For example, lets take the example of road infrastructure...In most of the countries this will be owned by the government and different transport providers will use this infrastructure to provide services paying road tax to the government and charging customers for the transport services....Every transport provider will have the same roads to use but they differentiate themselves by the type of carrier, type of services and quality of services....But there is no duplication of infrastructure and wastage of resources...

And we can find similar kind of examples in rail infrastructure, electricity infrastructure, water infrastructure and even in air infrastructure...In most of the developing nations we have government owning this infrastructure and in most of the developed nations we will see maximum duopoly...This kind of arrangement helps the nation use the infrastructure in best possible fashion. It also helps the nation in getting to invest in right services and no undue investment in resources which are not required...

After mentioning all these examples one wonders why governments around the world havent adopted the same approach for telecom infrastructure...Over the time, I think if we look at different markets, I am sure even the telecom infrastructure will evolve into duopoly but it has taken far too long for it to evolve itself into it...The question is why didn't the governments around the world look at different examples and took this approach from day one...This would have helped customers getting better services and even much better competition because every services provider would have used the same infrastructure...Specifically for India's case, this approach could have resolved this whole spectrum issue itself. The biggest bottleneck for indian telecom infrastructure development...

We do see this starting to happen everywhere...All the major companies around the world have already started developing infrastructure in partnership...For example recently Vodafone partnered with Telefonica to develop 3G infrastructure together everywhere in the world...Similary we will soon see similar kind of parterships developing everywhere...These kinds parternships help the company spread the cost base and use the money judiciously...We all know money is getting costly and even difficult to come by...These measures will only help our cause not only these difficult times but help us use our resources most effectively even in good times.

I know this is more of infrastructure sharing rather than the above point I was making. But I think this is a more realistic solution in todays world and I will talk more about it in my next blog.

Costly Post Paid Mobile Services in UK...Is it?

Since the time I have come here in UK, I think I have heard and read so much about costly mobile services here in UK...Some of the rates are as high as 20p per minute for domestic calls which seem apallingly high...Obviously there are factors such as high labour rates which force the services to be costlier than services back in India ( or other developing nations), 20P a minute does not seem to be justifiable at all...Infrastructure costs, IT costs, operationals costs are all same anywhere in the world, then why mobile per minute costs are almost 20 times more than costs back in India...



I thought probably EBITDA margins for companies here are higher and I was not surprised when I saw that margins were more less in the same range...So does that mean these companies here are less efficient and are not quite adept at keeping costs down...First reaction was not possible and hence did a small analysis on the cost strucutre or incoming revenue (that is ARPU).. Tried to map out all the different costs which the operators have to take out from the monthly ARPU...Following is my analysis based on the current plan of £20.00 per month (ARPU) I have from O2...I got this plan 4 months back...Following are the services I have for £20.00 per month

- 18 Months Contract

- 600 Voice Minutes

- 1000 Texts

- Unlimited Web Browsing (Mobile Data)

- Free Paper Bill (Normally charged £1 extra)

- Sony C905 Phone (Retail price 4 months back was £350.00 - Assume cost price for O2 to be £200.00)



Following is my analysis and it might be very surprising for few to see what is the actual cost per minute for any subscriber in the contract...

Total Money paid by me in 18 Months - 20 * 18 = £360.00
Cost of Mobile for O2 - £200.00....
Money Left with O2 for providing services - 360-200= £160.00
For 1,000 texts every month, fixed costs of texts can be taken as £0.50
For 18 months, texts costs = £9.00
O2 charges £7.5 for web bolt on (mobile broadband)...Taking 80% gross profit on it, cost for O2 to provide mobile broadband - £1.5
For 18 months cost of mobile broadband is - 18 * 1.5 = £27....

Money left for providing voice services = 160-9-27 = £124 for 18 months
Money left every month to provide 600 minutes = 124/18 = £6.8
Cost per minute in pences = 6.8 *100/600 = 1.14 Pence = Rs. 0.86 = 86 paisa in Indian currency....

Do you still think, mobile phone calls are costly here....I know this probably is not the best way of calculating the actual costs but they do give an idea of actual costs for the users who are using full 600 minutes (One example is me)....

Any thoughts are welcome