Something interesting is happening here in the UK, which may be a forerunner of what could happen elsewhere. BT, the encumbent fixed network operator, bought some 2.6GHz spectrum in the LTE auction earlier this year. Having initially said they had no plans to launch their own retail mobile network, they are now changing their approach and announced they may do so within the next 12 months.
We look at the context of how the commercial makeup of mobile network operators are evolving and are now becoming three distinct components. Is this a trend that will continue and be adopted more widely, or is BT's move an indication of consolidation to come?
The three commercial building blocks of mobile network service
Strong downward cost pressures on the mobile industry have driven some previously unthinkable commercial arrangements across many countries.
One way of highlighting these changes is to examine the vertical separation of the retail, network and deployment functions of a mobile network:
- Network Operators
- Outsourced operations and backhaul
Consumers are seeing a growing range of MVNO (Mobile Virtual Network Operator) brands to choose from, ranging from major retailers such as Tesco, Best Buy, niche startups such as Giff-Gaff, and established landline/fixed network players such as BT and Virgin Media. Often they have little idea of the underlying network operator, leading to radically different customer perception and ratings of what is essentially the same wireless service.
Network operators themselves have been consolidating their physical assets (cellsites) for some time. These are becoming even more entwined, moving from simply sharing the same physical cellsite locations (saving on site rental and tower construction costs) to full RAN share (saving on equipment, field staff etc.). Examples are the 3G and LTE network in Canada shared by Telus/Bell, the 3G RAN share in the UK between EE/T-Mobile/Orange/3, and the Vodafone/Telefonica site sharing deal also in the UK which is evolving into a full RAN share arrangement – meaning that the UK will really only have two sets of macrocell tower sites used by all network operators and MVNOs. For LTE, the drivers for RAN sharing are even stronger - the CTO of Orange Spain said at conferences last year that there was insufficient business case to fund a completely independent new LTE network and he was looking for partners to share the cost.
Outsourcing and Backhaul
The drive for cost reduction has also driven major outsourcing deals with some pretty eye-watering figures. Sprint outsourced their RAN operations to Ericsson for $5 billion; many European networks have had similar deals in place. Smaller technical outsourcing tasks include network performance evaluation such as this one for Telenor Norway. We've also witnessed significant contracts to outsource backhaul – the transmission between cellsites and central switching sites. Here in the UK, BT and Virgin Media (the major cable operator), provide much of the fibre/wired backhaul for the major networks. In some countries, the cost (and/or lack of availability) of wired backhaul has driven higher takeup of wireless (especially microwave), while other countries with low cost and widely available fibre backhaul have an easier choice to make.
How small cells could disrupt each of these segments
Most MVNOs aren't involved in any way with the network operation, restricting themselves to customer care, billing and provisioning of services. Some are SIM-only providers and don't subsidise handsets, while others will. A few MVNOs go further and have their own HLRs (Home Location Registers), allowing them to negotiate their own roaming agreements with other international networks.
Network Norway, now part of Tele2, paved the way for an MVNO to deploy its own small cells to customers, directly handling traffic in offices and homes – as much as 70% - and reducing the costs paid to their host network. With the cost of suitable 2.6GHz LTE spectrum being relatively low (10x less than for similar 800MHz spectrum in many countries), there is a possibility for some MVNOs to launch their own small cell networks. This could complement outdoor service from their host network with higher performance/quality indoor service at their premium customer premises (home and/or office).
Network Operator Consolidation
Many network operators seem to be more focussed on macrocell consolidation and/or their initial LTE coverage rollout programs today. Site sharing and RAN sharing agreements continue to grow, but I've got some surprisingly vague answers about how and where small cells will be integrated into these. Some operators see small cells as a key differentiator, delivering visibly noticeable higher speeds and quality to their customers. Others are concerned about the cost and see it as inevitable that small cells will be incorporated into the same RAN sharing agreements in the long term. A few distinguish between indoor and outdoor/public access small cells, suggesting that the enterprise/residential small cells would justify an operator specific approach – similar to that of the MVNO segment discussed above.
From the outsourcing perspective, the wholesale backhaul companies (BT, Virgin, COLT etc.) have been jostling to promote Small Cell Hosting. This combines fibre backhaul to a hub, wireless or DSL short range backhaul to a public access small cell, installation and ongoing maintenance of the small cells themselves. These are remotely configured and software managed by the network operators themselves. It could change the balance of power from the physical site owners (tower operators) to the backhaul/transmission companies, with a shift in the "share of wallet" spent by network operators. After all, analysts are forecasting some 20% of annual network RAN spending will shift to small cells by 2017.
Is BT's move a sign of something to come?
BT used to be a UK mobile network operator, launching and owning the UK mobile network Cellnet (later rebranded as O2). This was sold to Telefonica, and BT later became an MVNO reselling Vodafone service. They are also a major wholesale backhaul supplier, providing Ethernet/fibre service to all the UK mobile networks. The company has seen strong financial improvements recently, largely from its high speed consumer broadband service (VDSL fibre to the curb), which has had strong takeup and little competition.
When it bought some 2.6GHz LTE spectrum earlier this year, it was initially said this would be used to increase the reach of its fixed broadband services in rural areas - CEO Ian Livingstone saying "We do not intend to build a national mobile network". Perhaps it might resell/lease this spectrum to mobile operators for use in urban areas, or use it as part of its Small Cell Hosting service.
Rekindling the MVNO/Small Cell Concept
This month, we've heard they now plan to launch their own retail mobile network. It's unclear whether this will be along the lines of the expanding MVNO concept described above (similar to Network Norway), or whether they would also deploy public access small cells (by upgrading their growing public Wi-Fi network). They are actively looking to partner with an existing mobile network operator, and will be going through a full procurement process.
Wi-Fi and Small Cell Synergy
BT have a huge presence in Wi-Fi, both residential/consumer and public access. They are members of the FON consortium, allowing any customer who permits others to share their hotspot with reciprocal rights to access millions of others. Upgrading some of these Wi-Fi hotspots to full LTE service could be a major differentiator to their customers, and strengthen demand for their popular high speed VDSL fixed broadband service too.
It's definitely one to watch.
[Update: BT acquired UK mobile operator EE in January 2016]