Three UK in a spot of bother as senior execs head for the exit

With Three’s big bet on Huawei proving to be somewhat of a disaster, two senior technologists are heading towards the exit.

Many have focused on the difficulties faced by BT in light of Huawei’s limited role in the 5G future of the UK, but Three is potentially facing the biggest headache of all. And just as the team begins to pick up the scraps of a decimated deployment strategy, two of its most senior technologists have exited the business.

Phil Sheppard, who was for all intents and purposes the telco’s CTO, and Graham Marsh, the former-Director of Core Technology, have almost 30 years of Three experience between them. Now neither is working at the telco, and despite these two most likely having a significant input into the headache that is the current rollout plan, this is a company which probably needs as much experience in the ranks as possible.

While there will be conspiracy theorists who link these exits with the Huawei decision, this might be somewhat of a dubious link. Graham Marsh has already started his new role, founder at Infinite Potential, while Sheppard’s exit is less than a week after the Supply Chain Review announcement. There might well be a link, but this would be an incredibly cut-throat decision. Sheppard has said on LinkedIn he will be doing consultancy work in the immediate future, as well as taking a few holidays.

Irrelevant as to the background, Three could really use with this experience in the room not working for someone else.

The sticky situation which Three is currently in should not be taken too lightly. Three went big and bold with its 5G deployment plan, deciding to swap out Samsung 4G RAN to ensure backwards compatibility with its sole 5G RAN supplier Huawei. This strategy could have been a game-changer for the city-centric telco, but now it looks like a complete disaster.

The conclusion of the Supply Chain Review last week have certainly been met with mixed reviews. For some, at least there is a decision, a foundation of certainty which can be built on over the coming years as the industry hurtles towards the 5G era. But for others, the 35% network share restrictions on ‘high-risk vendors’ is either too extreme or not extreme enough. There isn’t a huge amount of consensus when it comes to the position on Huawei.

There are now two restrictions which the telcos will have to bear in mind. Firstly, equipment from ‘high-risk vendors’ cannot make up more than 35% of the radio inventory across the network. Secondly, no more than 35% of the total internet traffic across the year can pass through equipment from ‘high-risk vendors’. For a telcos who’s sole 5G RAN supplier is now deemed a ‘high-risk vendor’, this is a monumental migraine.

During its earning call last week, BT outlined the financial impact of the Supply Chain Review decision; £500 million. Part of this will be redefining its deployment strategy, while it will perhaps have to undertake a ‘rip and replace’ project to ensure there is interoperability between 4G and 5G RAN equipment. Three is yet to put a figure on the Huawei conundrum, but the impact here will be much more than financial.

Firstly, you have to consider the ‘rip and replace’ project it has been undertaking for the last six months in an effort to replace Samsung with Huawei as a sole supplier. Some of this work can be left alone, it has a 35% window to work with after all, but depending on progress, some of this work might have to be undone to ensure new supplier equipment performs to the levels desired.

Secondly, there is a major timing penalty placed on Three.

Picking a supplier in the telco industry does not happen overnight. There are numerous bureaucratic hurdles to jump over, commercial negotiations to take place, and trials which need to be navigated. It isn’t as simple as replacing Huawei with Ericsson, let’s say, this is incredibly time intensive.

Three is in a difficult position, and more often than not, whenever this is the case the people who have ‘been there, done that’ are some of the most valuable in the room. Unfortunately for Three, two of its most senior technologists are seeking pastures new.

Some have suggested the exit’s might be linked to the Huawei decision. There might be an element to this, but we suspect it is more a case of coincidence and bad timing. Very bad timing as it works out.

NB: On a personal note, best of luck to Phil. Having interviewed him a few times on camera and events, Phil is a lovely man with a wealth of experience. Whoever hires him next has found themselves an excellent employee!

Open-minded RAN key to 5G success

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Steve Papa, CEO of Parallel Wireless, makes the case in support of the OpenRAN initiative.

Years of consolidation have left the telecoms industry with three Radio Access Network (RAN) technology giants: Huawei, Ericsson and Nokia. But, these players risk becoming obsolete as the telecoms industry starts demanding networks that are open and flexible.

The RAN is a significant expense for mobile operators, in what is already a capital-intensive industry. Legacy RAN networks, built using the technology of the major vendors, is typically hardware centric and designed in silos for each generation (e.g. 2G, 3G, 4G) of connectivity. The technology is ‘closed’ by its nature, which means that it is incompatible with other vendors. Subsequently, networks have been very difficult to adapt and upgrade, with the hardware giants dictating the timings and cost of any maintenance and installation.

As we move towards the introduction of 5G, the industry is now beginning to realise that the economics of building the RAN need to change. 2019 saw significant moves towards OpenRAN, a new model of building radio networks, based on a software-centric and open infrastructure. The benefits of OpenRAN were illustrated by Vodafone’s announcement that it would be opening its entire RAN in Europe to OpenRAN vendors during TIP Summit in November. Both the O-RAN Alliance and the Telecom Infra Project (TIP) are leading the industry towards OpenRAN, with the O-RAN alliance driving industry standards, and TIP driving deployments.

Understanding the value of OpenRAN

The OpenRAN approach is achieved by separating hardware and software in the network. This helps networks support open interfaces and common development standards, to deliver multi-vendor, interoperable networks. This gives operators the flexibility to cost-effectively deploy and upgrade their networks, reduce complexity, and deliver coverage at a much lower cost. OpenRAN also makes it easier for network to support dynamic spectrum sharing (DSS) technology, which allows LTE and 5G New Radio technology transmission at the same time. DSS is key to the early adoption of 5G smartphones, which will rely on both 5G and LTE transmission.

Analysts’ projections from ReTHINK show that the costs of building 5G Macro-cell networks will fall by 50% if deployments incorporate open architectures. This saving equates to hundreds of millions of dollars in the overall total cost of ownership, and will help mobile operators extend investments and become more profitable.

In developed markets, 5G roll-out is in full swing and operators are spending considerable amounts building out their next generation networks and marketing them to the public. However, current connectivity standards cannot be neglected, and operators need a new, software-based approach that will allow them to deploy and run 5G technology efficiently alongside their 3G an 4G networks. This is why OpenRAN is so appealing to operators such as Vodafone, as it enables to manage all connectivity standards using a software interface.

Meanwhile, operators in developing markets are currently focussed on scaling 2G, 3G and 4G to rural and urban areas that don’t have internet. But developing markets have a low average revenue per user, so operators in these markets won’t survive with the approach of building and managing siloed networks for each network generation, as CAPEX and OPEX will skyrocket.

Internet para Todos (IpT), a wholesale operator owned by Telefonica, Facebook, and Latin American banks IDB Invest and CAF Bank is also driving momentum. It recently opened talks to bring a second operator on board, after connecting more than 650 sites and covering 800,000 people (450,000 actual customers) with a 4G rollout in rural Peru. Meanwhile, MTN, the South Africa based operator, recently announced that it is deploying OpenRAN technology in 5,000 sites as it looks to unify its 2G, 3G and 4G networks, to save costs for itself and its customers.

The OpenRAN initiative takes off

In 2020, the momentum behind OpenRAN will continue to grow as other operators realise how they can reduce costs, drive more competition between technology vendors, and stimulate higher levels of innovation in the industry.

OpenRAN clearly has the support from major players in the industry, however, it is vital that operators consider the most effective technology partner to enable the OpenRAN vision. OpenRAN must address all generations of mobile connectivity standards together – 2G, 3G, 4G and 5G. If MNOs decide to only introduce OpenRAN for 4G and 5G, they will still be faced with managing separate legacy and new networks, which contradicts the aims of the initiative.

Being able to support all generations of mobile connectivity under the same OpenRAN software umbrella is crucial to providing reliable connectivity for all and allowing the transformative benefits of 5G to be realised. The industry is hungry for change, and open-minded operators are the ones which will succeed. That might mean the traditional ‘big 3’, don’t stay the big 3 for long!

 

Steve has worked in the technology industry for over 20 years and is the founder and CEO of Parallel Wireless. Previously, as founder and CEO of Endeca, he built the business ultimately leading to Oracle acquiring the company. He was part of the team creating Akamai that developed global Internet content distribution – now carrying peaks of 15 terabits/s of web traffic on any given day – and led the team at Inktomi that reimagined the network cache to create carrier class caching. Steve also previously worked with AT&T Teradata. He has a BS from Princeton University and MBA from Harvard Business School.

Deep dive: what’s the deal with network sharing?

Information is only as useful as the context you place it in, and for that reason Telecoms.com periodically provides deep dives into industry-defining topics. In this one Jamie Davies explores the opportunities and challenges surrounding network sharing.

Each year brings different trends and talking points to the forefront of the industry, and 2020 is no different. This year, it appears network sharing will be one of the biggest talking points.

5G is on the horizon and it has the telcos scrambling. Upgrading telecoms infrastructure is going to be a very expensive job, ranging from fibering up a nation, to purchasing active infrastructure for sites and even paying for civil engineering jobs; building passive infrastructure is not cheap! Telcos need a way to make the financials of the telecoms future work.

All about the money, money, money

While it might not sound like the sexiest of trends to be assessing, it could turn out to be one of the most impactful. Telcos are scrapping and scraping around to fuel the 5G euphoria which has gripped the industry, and any option to do it more cost effectively would be lovingly embraced.

“Network sharing will be vital to mobile operators still grappling with ways to make the economics of 5G add up,” said Kester Mann of CCS Insight. “Deutsche Telekom for example has projected that the cost to deploy 5G across Europe would come out at between €300 and €500 billion.

“It’s no surprise then to see a growing list of operators partnering with each other in a bid to keep a lid on 5G capex. But these deals may just be the tip of the iceberg; investment models probably need to evolve to become more creative and innovative in the long run. For example, Poland has been considering plans for a single national 5G network at 700MHz. And it would be no surprise to see a European city take the plunge and deploy all 5G mobile infrastructure through a third party.”

Back in October, during a Madrid 5G core conference, Telecom Italia’s Lucy Lombardi outlined the difficulties being faced by the operators. Between 2010 and 2018, Lombardi suggested industry revenues were down $27 billion, but the telcos had invested $250 million in the network. Over 2019-2025, Lombardi suggested another $1.4 trillion would be spend by the industry, 70% of which would be on deploying 5G.

In short, the old ways of telecommunications are not going to cut it in the digital world of tomorrow. There are plenty of opportunities for the telcos to make money as everything and anything gets connected to the internet, but new business models need to be created to ensure these companies do not go bust in the pursuit of profits.

As Mann highlights, various different countries and regulators are pursuing different approaches to create value and efficiencies in the deployment of next-generation communications infrastructure. The Poland example is an excellent one, though the UK is pushing forward with its own innovative approach.

“In the UK, the recent confirmation of plans to introduce a shared rural network is rare example of successful collaboration between mobile operators more often engaged in cut-throat competition to attract and retain subscribers,” Mann continued.

“It aims to curb costs and accelerate timelines to bring more people on online who live in remote areas. It will also help overcome the perennial challenge of tough planning and access restrictions that has hindered network roll-out in the past.”

The UK Shared Rural Network could be described as both an innovative initiative and a business compromise.

As part of the initiative, £530 million will be contributed by the telcos with another £500 million being put forward by the UK Government. The plan will include reciprocal agreements between the telcos to share existing infrastructure and also joint investments to build telco-neutral sites for total not-spots.

This is an innovative approach to deliver connectivity to the most difficult to reach places in the UK, but it is also a compromise. To secure agreement from the telcos for the Shared Rural Network, the Government and the regulator will have to agree to drop the deeply unpopular coverage commitments attached to the 700 MHz and 3.6-3.8 GHz spectrum auctions.

However, what is worth noting is this is not necessarily a new idea. EE (or what was T-Mobile at the time) and Three formed MBNL in 2007, initially to operate and deliver 3G networks, while O2 and Vodafone teamed ahead of the 4G rollout to form CTIL in 2012. Both of these organisations offer financial benefits to the telcos.

“From a cash perspective it’s broadly 50/50 on the usual operating expenditures – so site rental, rates, field operations, etc. We then have the option of sharing the build of networks – we don’t do that for 4G or 5G, but we did that in the 3G build and that saved 50% of the initial capital expenditure, including on capacity and transmission costs by usage,” said Tom Bennett, Networks Director at EE

We’re not alone…

Elsewhere around the world, regulators have taken their own approach to encourage cooperation in the industry. In Malaysia, for example, the Malaysian Communications and Multimedia Commission (MCMC) has outlined another unique approach.

Licenses for the 700 MHz and 3.5 GHz spectrum bands will be given to a consortium rather than the individual telcos. Investment in infrastructure will be shared, as will the spectrum resources to deliver commercial services, though it is unclear how the telcos will play with each other.

For Malaysia, this is an important initiative. 5G is an expensive technology to deploy, but the regulator is also keeping an eye on 4G. In Western markets 4G investments are not front of mind as coverage is wide and deep, however in countries like Malaysia, the digital divide is a lot more apparent. 4G investments need to continue, and this approach to shared infrastructure is partly to ensure enough money is still directed towards 4G.

However, what is also worth noting is that not it is not a given regulators will be accepting of shared network initiatives.

Earlier this month, the Belgian Competition Authority (BCA) put the brakes on a joint-venture between Orange and Proximus which would create a shared network. The regulator is investigating whether this would negatively impact competition, after Telenet complained over the tie-up.

The issue in Belgium seems to be focused on the number of telcos which are currently present and the breadth of the agreement between the pair. As there are only three mobile players in the market, and the JV would span across all generations from 2G to 5G, the complaint focuses on the idea that it would reduce the number of infrastructure players from three to two. This might have an impact on deployment, as well as placing an unreasonable stranglehold on Telenet.

This is not the first time this issue has been raised either.

Last August, the European Commission informed O2 CZ and T-Mobile CZ that the proposed network sharing agreement in Czech Republic would breach the Commission’s rules on competition. The duo have been in a network sharing agreement since 2011, which incorporating 2G, 3G and 4G for 85% of the country, though the European Commission has now prevented this expanding further.

As is the case in Belgium, the Czech Republic only has three material telcos investing in mobile communications infrastructure. Although there are benefits for scale deployment, the European Commission suggested:

“…the network sharing agreement is likely to remove the incentives for the two mobile operators to improve their networks and services to the benefit of users.”

The European Commission and national regulators are generally open to ideas on how the telecommunications industry can be more efficient, though they are particularly sensitive to competition. Anything which would hint at removing competition would be quashed almost immediately, which is the tricky path which telcos tread. This is particularly notable in markets where there are only three operators, and one has been left out of the network sharing agreement.

Looking at the rules in question at a European level, Article 101 dictates the state of play. These rules effectively look to prevent:

  • Price fixing
  • Production, development or investment limitations
  • Supply scarcity
  • Placing a competitive disadvantage on other parties

The maintenance of a fair and reasonable market is of course a noble pursuit, but the European Commission and national regulators do have to be careful in applying these rules. The telcos do need to apply new models to ensure the feasibility of the 5G business model.

Consolidation is still the enemy

“Regulators will clearly be vigilant, as they want to make sure that sharing does not turn into mobile-to-mobile consolidation, which they don’t like,” said Dario Talmesio, 5G Practice Leader at analyst firm Ovum.

“They could see that sharing can be consolidation through the backdoor.”

The European Commission and its regulators are very sensitive to consolidation. Despite the industry begging for attitudes to change in the pursuit of scale economics to ease the burden of deployment, the regulators have stood their ground to refuse consolidation. The attempted merger between O2 and Three in the UK during 2016 was blocked on the grounds of competition, as was an effort by Telia and Telenor to merge their Danish businesses in 2015.

The rationale for both of these mergers was to create a single-entity where the economics of running a telco at scale were more attractive. As Talmesio points out, network sharing initiatives are very important to ensure the industry progresses in a manner which keeps pace with the consumer and enterprise.

“CSPs have for very long been sharing some elements of their networks, and every G has pushed them to share a bit more, mainly because of the cost and time it would take to build new sites,” said Talmesio.

While it will never be the case that the network is finished, the widespread upgrades which are demanding with every new ‘G’ is what makes the telco industry unique and eye-wateringly expensive to play in. This is where the economics of scale are critically important and why European telcos are perhaps on the backfoot.

European nations are small, and some are drastically smaller than say China or the US. While larger countries present their own challenges in terms of coverage, the benefit of a scaled subscriber base gives more confidence to make bigger investments. Some European telcos will never have this advantage so will have to look for alternative means to fund network deployment.

Although the estimates vary quite considerably, one thing is for certain; network sharing initiatives ease the financial burden of network deployment.

There are of course financial benefits to network sharing, though the estimates do vary. A report from the Body of European Regulators for Electronic Communications (BEREC) suggests the following:

  • Passive sharing cost saving of 16-35% on CAPEX and 16-35% for OPEX
  • Active sharing cost saving 33-35% on CAPEX and 25-33% for OPEX

Efficiencies are increased when spectrum costs are also shared, though this is unlikely to be a common practice as spectrum assets are often considered a differentiator. If this was to be removed, the industry would start the precarious walk towards utilitisation.

Looking at the proposed joint-venture between Orange and Proximus, the duo will of course be saving money, but another interesting opportunity is in scaling the network. The shared network initiative would increase coverage by 20% in comparison to the combined footprint if the teams are to pursue network deployment independently. We suspect 20% is a comfortable number, and this could be increased should a partnership want to deploy more aggressively.

The financials of the telecoms industry is not working in conjunction with the demands of the consumer and authorities. Cheaper tariffs, faster speeds, greater coverage, better reliability. All of these factors weigh one side of the equation making it difficult for the telcos to continue.

Another factor to build the case for network sharing initiatives is somewhat more bureaucratic.

Telcos are being asked to improve both outdoor and indoor coverage in both the rural and urban environments, but in some cases the biggest problems can be accessing or procuring new sites to deploy infrastructure, both passive and active. It might make sense to share these sites as there is limited availability, or it would at least make more sense to share the transmission lines to ease the burden of civil engineering costs. Another factor you have to consider is the rental fees charged by landowners, some of which are deemed unnecessarily high by the telcos. This has been frequently highlighted under the term ‘ransom rent’ as the telcos have little option if they are to expand coverage.

In some towns there is another bureaucratic nightmare to consider; listed and historical buildings. In Cambridge, UK, for example, so many of the structures are deemed historical or protected, the number of potential mobile cell sites is substantially smaller; share infrastructure is a creative solution.

Its not all plain sailing

What is worth noting is that there are also drawbacks to network sharing agreements.

Firstly, more cooks spoil the broth. With shared assets in operation, especially active assets, require consent and coordination between the sharing parties. There are numerous challenges here, most notably aligning commercial objectives of the parties and more signatures to acquire. Evolution of these sites could certainly take longer in the future.

Another challenge arises when something goes wrong. Debugging the issues could be much more complicated, though this is entirely dependent on how much the two operations are entwined.

BEREC has also noted shared networks could also increase the electromagnetic field emissions. Each regulator imposes limitations on electromagnetic field emissions therefore bureaucratic revision might well be needed should more of these initiatives bear fruit.

The combination of or joint-funding of assets also decreases the resilience of communications infrastructure in a country. Fewer independent mobile networks or infrastructure might well make a country more vulnerable as it reduces the number of points of failure and robustness.

It is also worth bearing in mind that there is only so much space available on masts for active equipment. These concerns were raised in Bulgaria, Cyprus and Croatia, amongst other nations. Networking planning is another concern, as each MNO has its own unique requirements, while technical issues in relation to existing suppliers and protocols could mean MNOs are not compatible with each other.

It would be unfair to suggest network sharing is an uncomplicated path forward.

Despite there being momentum for network sharing, not all of the regulators share the enthusiasm. Aside from Belgian scepticism, Hungary believes non-participating MNOs would face a risk of being squeezed out of the market, while Austria has suggested incentives for investment will decrease in the long term.

There will be pros and cons on both sides of the equation, but it does look to be the fairest and most reasonable compromise to ensure a healthy and sustainable telecommunications industry. The traditional way of deploying networks does not look to be financially feasible, therefore new ideas are needed.

Network sharing is one of the most prominent trends during the early days of 2020 for good reason, and it is safe to assume more of these initiatives will emerge as we progress through the year.