5G needs a new competition model for small cell deployments

5G needs a new competition model for small cell deployments

The current cellular market is built upon the regulatory policy of four competing mobile network operators (MNO’s) each having their own separate radio access network, each with their own exclusive spectrum and faced with today’s cost structure of rents, site acquisition costs etc. An earlier blog looks at a systematic examination of how government and regulatory changes could reduce this cost structure. That is a very useful thing to do but it falls well short of the depth of cost reduction needed. Much deeper cost reductions has to address the tricky issue of changing the competition model. At this juncture most people tend to leap straight to the “neutral host” model as the solution, where the MNO’s look to a third party “carriers carrier” to provide the infrastructure and sell capacity to them on a purely wholesale basis. But it is worth standing back and looking at all the possibilities:

Four player market –  It is the zero option. This model will begin to break down after the locations of very high foot fall have been over-covered.  There will be many areas where not all MNO’s will be present…which will leave substantial coverage gaps for individual customers. As traffic becomes marginal investment will tail off leaving substantial outer urban areas uncovered. The model is likely to result in the poorest coverage outcome from the customer perspective.

Two player market – This potentially halves the cost per mobile operator. More than that the combination of two sets of customers brings more cells into viability. The two natural pairings might be:

  • Two current mast sharing groups (MBNL and Cornerstone)
  • Two fixed infrastructure companies (Openreach and Virgin)

Single player market – This model is popularly known as a “neutral host”. It is a monopoly infrastructure provider that provides a wholesale service to the MNO’s. This theoretically cuts the cost per mobile operator by four and brings even more cells into potential viability. However, the lack of competition puts into question the incentive to invest.

There is a variation of this model of federating the coverage of competing “neutral hosts” that I term the “Open Host” model. In this model, the MNO’s are permitted to be neutral hosts. It is envisaged as a voluntary arrangement but accepting the competitive rules of the model:

  • MNO’s pool their 5G spectrum and aggregate their coverages on a voluntary basis
  • First to a location carries the traffic for all MNO’s at that location
  • A wholesale market is created that incentivises the MNO to maximise the number of locations
  • MNO’s compete to partner with a local authority to cover less viable locations

The “Open Host” model enjoys all the cost benefits of the monopoly neutral host model, is more flexible and injects “wholesale” competition. It is not perfect but looks the better of the alternative models on offer. It could begin with just two MNO’s pooling their spectrum and coverage but the fundamental principle is that it must be open for others to join. The wholesale rates could be purely a matter of commercial negotiation but would need to strike the right balance of rewarding investment but not discouraging participation. Federating coverage areas is not a new idea. That is how European coverage was achieved for GSM.

The bottom line is more coverage (more cell sites become viable by serving all the customers), all of the coverage provided is accessible to all of the customers and the potential cost saving is 75% over the zero option of four competing operators each attempting the same extent of  coverage. In fact if the 20% (ball park) cost reduction identified from the Part 1 blog is factored in the cost saving rises to 80%.  That is a serious amount of money to be saved.

In my next blog I show how, with more adventurous regulatory and business model innovation, the figure can be driven down to 92% cost saving by capturing, organising and monetizing all the “free coverage” that private 5G cells can contribute.

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