Mobile Pro Mvno Agreement

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					Mobile network sharing -
Swedish experiences

Bengt G Mölleryd


20 May 2010


Email: bengt.molleryd@pts.se
Network sharing – a no-brainer?
• Reduce Capex with 20-50%
• Cut Opex significantly
• Deploy networks faster with fewer towers
• Positive on the environment
• …but there is also a cost associated with
  network sharing




         2011-04-18                    2
  Positive impact of network sharing

• Extensive deployment of 3G
• 3G population coverage 99.59%            ~50%
• Geographical coverage ~50%
• 3G operators have more than
  fulfilled license requirements
• Competition Authority forced
  operators initially to make some
  alterations
• PTS support network sharing


                                         ~40%
             2011-04-18              3
 Hot topic – part of the new market

The aim with the presentation is to:
• Give a view on ten years with network
  sharing in Sweden
• Convey regulators view
• Illustrate the costly deployment in rural
  Sweden
• Show the limited impact on competition
• Give a view on the future network sharing




           2011-04-18                         4
    My background
•Ph.D. Oct 1999 ”Entrepreneurship in
Technological Systems - The Development of
Mobile Telephony in Sweden”
                                             S T EL A C O N
•   Analyst with focus on telecom            M A R K ET IN G R ES EA R C H & C O N S U L T IN G




     •   AB Stelacon 1999 – 2001
     •   Evli Bank 2001-05
     •   Nordea 2005-06
     •   Standard & Poor’s 2006-08
     •   Handelsbanken 2007-09
     •   PTS 2009 –
•Guest researcher Royal Institute of
Technology, Stockholm (wireless@kth) 2009-




                      2011-04-18                     5
 Telia dominated the market in 2000
• 6.3m GSM subs                                Market shares 2000


• 70 subs per 100 inhabitants
                                   Europolitan
                                    /Telenor
                                      16%
Population coverage
• Telia 99%
                                                                    Telia
• Europolitan (Vodafone/Telenor)                                    51%
  and Tele2 96%                        Tele2
                                       33%


Geographical coverage
• Telia 80-90%
• Europolitan and Tele2 40-60%


              2011-04-18                                   6
  Four 3G licenses (Dec 2000)




                          X
License requirements: cover 8.86m people with up to 70%
shared infrastructure and 30% by own infrastructure


             2011-04-18                        7
 Two network companies formed




Sunab was able to build the entire network as Telia did
not have a 3G license


            2011-04-18                          8
  Regulators - positive view

PTS                           Competition Authority
• Part of the license         • Sunab more extensive, but
  requirement                   Telia did no have a 3G
• Operators able to fulfill     license
  70% of coverage             • 3GIS – new players low
  obligation by network         market shares
  sharing
                            • Yes – go ahead with
• 30% by own infrastructure   network sharing
• Positive towards network
  sharing



              2011-04-18                      9
                                                        Case DK - SE

 Different conditions: 43 vs 2 in/km2

Denmark                         Sweden
• Area: 43 094 km2              • 450 295 km2
• Population: 5.5 m             • 9.1 m
• 128 inhabitants/km2           • 20 inhabitants /km2
Urban                           Urban
• 80% of the population lives   • 90% of the population lives on
  on 40% of the area              10% the area
• 255 inhabitants/km2           • 182 inhabitants/km2
Rural                           Rural
• 26 000 km2                    • 405 266 km2
• 43 inhabitants/km2            • 2.2 inhabitants/km2



            2011-04-18                             10
                                                                      Case DK - SE

Deploying over 10K sites in SE
                                Number of sites

12 000


10 000

                                         Coverage in
 8 000
                                         unpopulated
 6 000
                                         areas

 4 000


 2 000


    0
                      Sverige                          Denmark

                                      Urban   Rural



         2011-04-18                                              11
                                                                           Case DK - SE

Capex per subscriber - too high
                          Capex per sub

6 000

                5 041
5 000


4 000


3 000                          Payback 200
                               months
2 000


1 000
                         526                                  466
        124                                            89             152
   0
               Sverige                                      Denmark

                               Urban   Rural   Total




         2011-04-18                                                   12
Almost 50% of capex 2003-04
                       Network sharing of toal capex

60%


50%
                                                 Fulfilled 3G license
40%                                              requirement 2007
                                                 Cover 8.86 m people
30%


20%


10%


0%
      2001   2002      2003   2004    2005    2006      2007      2008       2009

                     Sunab     3GIS     Total netw orks sharing capex



              2011-04-18                                                13
12% in relation to total market
      Network share part of value (total end customer revenues)

14%


12%


10%


 8%


 6%
                                           Indicate that
                                           88% of value
 4%                                        made besides
                                           network sharing
 2%


 0%
      2002    2003        2004   2005   2006   2007    2008       2009




             2011-04-18                                             14
..limited impact on market shares
                    Market shares (subs)

 60%


 50%


 40%


 30%


 20%


 10%


 0%
       Telia          Tele2          Europolian/Telenor        3

                              2000   2009



       2011-04-18                                         15
…but Telia’s revenue share dropped

                            Market shares (revenues)

 70%

 60%                             Although Telia has lost market
                                 shares it has a firm grip of the
 50%
                                 market
 40%

 30%

 20%

 10%

  0%
       Telia                    Tele2             Europolian        3

                                        2000   2009


               2011-04-18                                      16
Consumers enjoying low prices




   OECD mobile medium-usage basket, August 2008, tax included




          2011-04-18                                 17
…but what about 4G network sharing

• Heavy volume users
• IP-based infrastructure makes it more
  dynamic
• Voice over 4G from 2015?
• Giving GSM a new push
• Peak rates play a vital role in strategic
  marketing
• Differentiation of mobile data services
• Operators need to increase capacity and
  lower production cost
• Making spectrum to a key asset

         2011-04-18                    18
Three infrastructure companies –
different partners




        2011-04-18                 19
Net4Mobility – low share of value creation

• Net4Mobility’s cost base in               Net4Mobility share of value creation
  relation to Tele2’s and       20%

  Telenor’s revenues            18%



                                                         8%
                                16%

• Assuming annual costs of      14%


  SEK 952m for Net4Mobility
                                12%
                                10%


• Capex SEK 3.3 bn
                                8%

                                6%


• Opex 10% of accumulated
                                4%

                                2%

  capex, WACC 8.2%              0%
                                            Tele2                                  Telenor


• Total mobile market SEK
  23.8bn (end customer                Represents 4% of the total
  revenues)                           market value - implies limited
• Market shares: Tele2 and            impact on competition
  Telenor 22% respectively


              2011-04-18                                           20
…but if its affects competition negatively


 • Competition Authority is scrutinizing the
   agreement
 • Determine the level of network sharing
   (broad range: passive, active, full)
 • Sunab as a role model
 • Enforce Net4Mobility to safe guard continued
   end-customer competition
 • …but if this is not sufficient




          2011-04-18                   21
…could PTS take measures

• …and examine the market for mobile origination
• Revisit the market analysis that PTS carried out
  in 2005 and explore if any player has SMP status
  on the market for network capacity (Access and
  call origination on public mobile telephone
  networks)
• Another possible avenue could be to examine
  ways to support the unexploited MVNO market
  in Sweden
• …or use other possibilities


          2011-04-18                     22
Pro and cons with network sharing

            +                            -
• Lower Capex               • Cumbersome to reach
• Lower Opex                  consensus on all aspects

• Benefitting from an       • Loose independence over
  enhanced network            network strategy

• Maintained control over   • Hidden cost
  mobility                  • Impossible to foresee
• Maintained position on      everything that has to be
  the market                  part of the agreement




          2011-04-18                         23
Concluding with a positive view
• Network sharing is here to stay – part of the new
  market
• Competition has not been affected negatively
• Provided large coverage and price worthy services
• What about the Future: loaded sites gives no
  incentive to pursue network sharing…
• …but increasing flexibility of 4G infrastructure support
  network sharing
• It is primarily a financial issue and operators’ drive to
  generate value safeguard continued end-customer
  competition


           2011-04-18                            24
                          Q&A


Vornear passer det bedst med et foredrag fra det svendske PTS?
                         - Hvergang!!



             2011-04-18                         25
    Appendix




2011-04-18     26
   GSM has been revitalized




~90%                      ~70%                   ~65%
                    Geographical coverage
       2011-04-18                           27
GSM still dominates …
                               Traffic split GSM vs 3G

100%

 90%

 80%

 70%

 60%          Implies that network
 50%          sharing is only applicable
 40%          to 37% of voice minutes,
 30%
              but mobile data…
 20%

 10%
 0%
       2001     2002        2003   2004    2005    2006   2007   2008    2009

                                          3G      GSM



               2011-04-18                                           28
Sweden having low prices




          Source: Mobile phone service prices 2009 – International
          comparision, Ficora May 2009


      2011-04-18                                         29
                                                  Case DK - SE

Business case 3G

• 3G penetration 90%
• Market share 25%
• ARPU EUR 25
• Capex EUR 100 000 per site (70K site + 30K radio)
• WACC 12.5%, annualized site 20 years, radio 5 years
• Opex 20% of accumulated capex
• Direct cost EUR 80 per year and sub
• Geographical coverage SE 45%, DK 80%
• Cell range 2.5 km



           2011-04-18                        30
                                                                          Case DK - SE

Profit margin after annualized capex -
Massive losses in Rural SE
                      Profit margin (after annualized capex)


100%    58%    62%                                                        54%
                                              14%               7%
  0%
          Urban                           Rural                      Total
-100%

-200%                                               Decisive
                                                    argument
-300%
                                                    to pursue
-400%                                               network
                                                    sharing
-500%

-600%                                -567%

                                    Sverige   Denmark



         2011-04-18                                                  31
                Mobile capex - EUR 4.5 bn

                                Mobile capex 2001-2009                            Share of mobile capex 2001-2009

       1600

       1400
                                                                                         3GIS           TeliaSonera
       1200                                                                              19%                23%
       1000
EURm




       800
                                                                                 Sunab                      Telenor
       600                                                                        13%                         7%
       400
                                                                                                           Tele2
       200                                                                                                  9%
                                                                                                 3
         0
                                                                                                29%
              TeliaSonera   Telenor     Tele2       3        Sunab       3GIS




              Telenor acquired Europolitan/Vodafone Sweden in 2005 for EUR 1bn




                                      2011-04-18                                                  32
Network companies share of value 4%-18%
                            Share of value (revenues)

 30%

 25%

 20%
       Revenues/cost for network companies in
 15%   relation to revenues made by the operators

 10%

  5%

  0%
       2004          2005           2006       2007          2008           2009

                   Tele2 share of Sunab        TeliaSonera share of Sunab
                   Telenor share of 3GIS       3 share of 3GIS


              2011-04-18                                            33
Mobile broadband: revenue gap?

          Amount of                       Traffic
          - traffic
          - revenues
          - costs

                                              Revenues
                                                                  ?

                                                                  ?
                                             Network Cost


                        Voice is         Data is         Time
                       dominating      dominating


     No problem with capacity until utilization rates reach peak rates
     Network upgrade drives capex that reduces cash flow

                         Business Innovation Strategies to Reduce the Revenue Gap for Wireless
                         Broadband Services by Markendahl, Mölleryd, Mäkitalo, Werding
          2011-04-18     download: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1559116
                                                                        34

				
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