Not surprisingly, most mobile operators are now keenly focused on reducing both capital and operational costs. And while some continue to make good progress eking out savings through traditional organizational cost reductions and restructuring, others are taking the opportunity to fundamentally rethink the way they develop and manage their mobile networks.
New models emerging
Based on recent events and announcements in Europe, it seems that the sector is in the midst of breaking into three distinct business models:
- The Private Access Network Model. This remains the most common model where operators own their network assets and infrastructure. In markets where network quality and reach is a significant differentiator for operators, this model offers private networks – particularly those already established – with a strong competitive advantage. However, in markets where networks are no longer seen as a differentiator, private access network models most often result in high capital costs with little added value.
- The Shared Access Network Model. In this model, assets are shared between competitors to reduce costs and increase efficiency and scale. In some cases, only the passive assets (such as towers but not antennas) are shared while in other cases entire active mobile networks are shared and jointly managed – often through Joint Ventures. The rise of Everything Everywhere in the UK and NetWorks! in Poland (both operated as a joint venture between Orange and T-Mobile) shows that this model can successfully reduce costs while providing a competitive platform on which to differentiate.
- The Mobile Virtual Network Operator Model. A number of operators have started to evolve towards a model where no physical network assets are owned but rather leased from other operators/competitors. Strategies vary from the ‘full MVNO’ where everything outside of the network – such as billing and customer service – remains with the operator, through to the ‘light MVNO’ that only takes on the marketing, sales and distribution. In the Netherlands, for example, a number of MVNOs have emerged to challenge the incumbents including Rabo Mobiel, Hema and Aspider.
Although the sharing option can be regarded as an alternative to outsourcing, often it is better considered as an intermediate step in a process of continuous improvement. After the sharing partners have merged their operations and have reaped efficiency gains themselves (by streamlining operations and existing contracts), the option for outsourcing is still open.
An evolution already underway
Already, we are seeing promising signs that these new models are delivering value and cost savings for mobile operators. For some, sharing is also done in other areas such as procurement, with Deutsche Telekom and France Telecom-Orange’s as a good example. Their shared procurement joint venture (BUYIN), aims to deliver cost benefits by pooling purchasing activity in handsets, mobile communications kits and large parts of their fixed network and service platforms.
Short-term pain leads to long-term gain
As with any business model transformation, the move towards shared assets and processes will have significant implications for operators. Consideration must be given to the operational impacts (ensuring that network quality remains high), commercial effects (maintaining focus on customer needs), organizational change requirements (such as the restructuring of business units), as well as regulatory aspects.
But while the transformation to new models will undoubtedly be difficult for many operators – sacred cows will need to be closely evaluated and hard decisions will need to be made – it is clear that network sharing is already delivering significant cost savings and competitive advantages for operators around the world.
By Bart Bastiaans and Lars van Zomeren, KPMG in the Netherlands