By Michelle Choi, an insider at Lease Advisors
With data demand on the rise and projected to increase as consumers rely heavily on wireless devices and coverage, the telecom industry continues to face great pressure. Mobile operators struggle to accommodate the growing popularity of high-bandwidth applications and services like video, gaming, and mobile financial transactions, as well as calls for improvements in the efficiency, availability, and scope of their supporting infrastructure.
Device-content-service giants like Apple and Google, who have managed to unify the three into dominating technological forces, essentially subsidize the telecom operators’ infrastructures through the need for coverage in order to access and use their platforms. The competition to meet this need, with cheaper competitors moving into emerging markets, gives operators all the more reason to search for ways to cut costs and capture higher profit margins. In recent years, telecom operators’ EBITDA (earnings before interest, taxes, depreciation, and amortization) has decreased from 40% to 20%. Continue reading here.
Clearly, demand for sophisticated services at low prices and increased competition that reduces margins, coupled with a myriad of imposing regulatory licenses, have driven telecom operators to collaborate. Strategic alliances between operators or moves to outsource tower operations and liabilities to a third party characterize the joint ventures forming to combat the growth in mobile data traffic. What has been labeled as a “coopetition” and “infrasharing” within the industry has lowered capital expenditure costs in maintenance, personnel, and power, freeing up capital to invest in the development and enhancement of tower sites.
Operators commonly share passive, non-electric infrastructure—steel towers, BTS shelters, power supplies, generators, batteries, and air-conditioning units—while remaining wary of the complications that arise with the sharing of active, electric infrastructure—spectrum, antenna, transceivers, and microwave equipment. Contracting set-up and maintenance is considerably easier than contracting frequencies and cells with control and regulatory issues surrounding them. This trend, however, is a barrier for entry as it requires new entrants to establish their own transmission equipment.
New entrants still enjoy a lower barrier for entry than if they had opted out of partnership completely, and at the expense of existing operators who risk market share loss to their emerging competition albeit cooperation with them. Despite the benefit of expedited rollout in sparsely-populated rural areas that satisfy the legal obligation, other legal issues including taxes on transfers of interests in properties, regulatory and land use approvals, anti-trust regulations, and even anti-bribery legislation for corrupt practices for deals in emerging markets have proven to be difficulties that inhibit the growth of collaboration among telecom groups. A sound agreement between the parties is crucial to managing these obstacles.
And the benefits of a sound alliance have the potential to reduce network deployment costs and time for rollout, produce capital from savings in operational costs, and enable a shift from a cost-centric to a customer-centric approach which seems counterintuitive, but helps establish an image and value to consumers who see telecom companies as a bit pipe. These unconventional moves toward collaboration between competitors should further developments and improvements in tech and telecom systems, improving outlooks for the industry, players, and consumers alike.
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