Mobile operators continue to generate innovative ideas to excite consumers and fuel growth in usage and revenues. But they face real challenges in building sustainable businesses. Growth in traditional access services has slowed, and revenue growth from new services can bypass mobile operators’ ability to add value or even charge for the services used. So does this mean operators should stand by and watch margins reduce to near zero?
To secure long-term profitability mobile operators must focus on reducing network costs by lowering the cost per bit carried. Network sharing and network outsourcing present two options for achieving this.
Network outsourcing and sharing – what are the options?
Network and IT expenditure typically constitutes 75% of capital expenditure and 45% of operational cost per annum for a mature mobile operator. These figures indicate the potential scale of targeted cost efficiencies in these areas. Sourcing options to reduce the cost of the network include:
Site sharing: Site rental and maintenance can account for 10% of overall operational costs, so the relatively small step of site sharing can have significant benefits
Real estate outsourcing: Implemented in conjunction with site sharing?, real estate outsourcing further increases savings. This approach can also have an immediate impact on the operator’s bottom line through an upfront payment from the outsourcer
Network outsourcing: Network outsourcing has a greater impact on profitability than site sharing and real estate outsourcing. It is not unusual for operators to save up to 20% of costs through outsourcing to a managed service provider
Network sharing: Network sharing can reduce costs even further, particularly by targeting overcapacity in low-traffic areas. Overcapacity is usually hidden by the overall profitability of a network but, in PA’s experience, up to 80% of sites have insufficient traffic to achieve payback. This tends to apply to multiple operators covering the same area, making a powerful case for some form of network sharing.
Making network outsourcing and sharing a success
Ultimately the preferred option depends on how ambitious the operator is in terms of saving costs and taking risks, as well as what is possible under local regulatory or market conditions. In practical terms, there is a range of models that operators can use to realise these options. These include forming a joint venture with competitors, or outsourcing to a specialist managed services provider. To achieve successful network sharing or managed network services, operators must agree contracts that reflect the network’s continuing role as a source of strategic advantage. The mobile operator’s retained organisation that manages the outsourcing agreement therefore has to retain control of strategic technology and quality of service decisions.
In the last five years, PA has completed over 20 successful network sourcing and sharing projects. Our network sourcing and sharing experience includes working with European mobile operators, from strategy to implementation, to achieve significant savings while increasing performance.
To find out how PA can help you get the best deal from your network and secure long-term profitability, contact us now.