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Coleago Insight: African MNOs should develop integrated sharing and spectrum strategy

Africa has been slower than other regions to benefit from the Digital Dividend
In Europe and North America most countries have completed their switchover from analogue to digital terrestrial TV (DTT) and the resulting 700 MHz or 800 MHz spectrum has been allocated to Mobile Network Operators (MNOs) through auctions. Regrettably many African countries will not complete the digital switchover before the original 17th June 2015 target. Yet although Africa has been much slower to benefit from the Digital Dividend (DD), the region should catch up quickly over the next few years. Many African Telecommunications Union (ATU) members have started the switchover and will soon be in a position to allocate the resulting DD spectrum simultaneously in the 700 and 800 MHz bands.

DD spectrum will require significant up-front investment from MNOs
Due to the propagation characteristics of the 700/800MHz bands, the DD spectrum is very attractive for MNOs for rural coverage and indoor urban penetration as the number of cell sites required is much lower than at higher frequencies. However, the network will still require a significant investment for any operator and its shareholders on top of any licence and spectrum fees that will be due.

For many European MNOs the DD has been one of the key drivers to enter into network infrastructure sharing arrangements with their peers. CapEx and OpEx savings from network sharing are maximised if it is implemented before rolling out new technology and will typically be at the higher end of the 25-40% range.

MNOs should act now to develop their network-sharing and spectrum strategies
In any market there are usually numerous network sharing options in terms of potential partners, geographical scope, technical scope, and sourcing. There will also be a set of future scenarios that need to be considered in terms of the outcomes from the DD spectrum awards, potential operator consolidation and, in some cases, perhaps a new entrant. The value of the DD spectrum will vary considerably across these sharing options and future scenarios. Thus network sharing strategy and spectrum strategy are intrinsically linked and have a significant impact on the Enterprise Value of an MNO.

All the sharing options and spectrum scenarios need to be evaluated objectively in a comprehensive business case in order to identify the most attractive partner, ideal scope/approach for sharing and spectrum bidding strategy – but timing is critical. If an MNO wants to gain first-mover advantage or, at the very least, to avoid last-mover disadvantage, it needs to act quickly to develop its integrated network-sharing and spectrum strategy well in advance of any spectrum auction or allocation. Being the last mover might mean that the savings are sub-optimal or even non-existent in the case of a three-player market.

Use the best-practice approach to prepare an objective, integrated strategy
Developing such a strategy has become increasingly difficult with the availability of more frequency bands and new technologies, coupled with the explosive growth in mobile data traffic seen in the more developed markets. The number of combinations of sharing options and future spectrum scenarios grows rapidly and good traffic forecasts become extremely important.

A best-practice approach has the following features:

  • Traffic forecasts: built on local, historical information but factoring in the knowledge and benchmarks from other markets; such forecasting requires a high level of expertise supported by a good database.
  • Spectrum scenarios: taking into account the current situation and identifying all future possibilities, including any potential operator consolidation or new entrant; experience from other markets is critical to ensure that every scenario has been identified and the technology roadmap described in sufficient detail
  • Network sharing options: with more than 75 passive and active RAN-sharing deals completed worldwide, just about every possible sharing option has been implemented somewhere; a deep understanding of these deals is important in order to develop a realistic set of options and an estimate of their potential benefits
  • Business modelling: requires the design, build and test of an integrated commercial, technical and financial model to evaluate the multiplicity of spectrum scenarios and sharing options; better still, is to use an existing, purpose-built, tried-and-tested model such as Coleago’s to save time, improve quality and reduce risk.

The deliverables from this approach and next steps will be to:

  • Determine the spectrum bidding strategy and valuations, with and without network sharing
  • Determine the network sharing strategy and, if attractive, negotiate a Heads of Agreement with the preferred partner before it is too late and the advantage is lost
  • Lobby and educate regulators for appropriate spectrum auction rules and network sharing policy.
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