Open-access wholesale mobile networks not necessarily panacea
Open-access wholesale mobile networks can’t guarantee success
Wholesale-only network operators may contribute to ensuring and maintaining an effectively competitive, innovation-friendly market for broadband services. Yet, there is no evidence that they are essential to fulfilling this purpose.
Wholesale-only operators can only become commercially viable businesses if they are able to attract substantial traffic from those existing operators with the largest customer bases. However, these operators have other options, such as using other operators’ wholesale services or continuing to expand their own facilities, either independently or with some degree of network sharing.
A common goal in most countries is to sustain effective and fair competition in the provisioning of data services while also achieving affordable, widely or quasi-universal access to these services, at predefined quality levels, while exploiting state-of-the-art, continually improving technology. Effective wholesale regimes are necessary to realise this goal, and open access is one component of an effective regime, but they may not be sufficient.
Proposals are on the table for future LTE deployments in South Africa, which may take an open-access approach. However, the deployment of wholesale-only RANs (radio access networks) for mobile broadband is far less developed than wholesale-only fixed access networks like those found in the UK and New Zealand and, as yet, comparatively unproven.
A major stumbling block or gating factor in the future of wholesale-only mobile networks will be their attractiveness to existing mobile operators that collectively have already achieved high penetration levels of mobile services among the population.
The prospects for these networks will therefore depend to a significant degree on the power and ability of governments to persuade these operators to become wholesale customers of such a venture. This participation will be more likely if these operators are drawn in as investors in the wholesale-only mobile network in a public/private partnership, and if they see the wholesale-only venture as the only means of access to spectrum they value highly.
The examples profiled here illustrate a common set of wholesale network-related issues for achieving universal and affordable broadband accessibility, although the detailed circumstances vary widely, in terms of the:
- (i) Sources of funding (and the very high per capita investments needed to cover the last few percent of a population in medium and large countries) and the balance between public and private sector investments, and
- (ii) Respective roles of the public and private sectors in the governance and operation of new networks.
Additional critical factors for wholesale mobile networks hinge on the allocation and assignment of sufficient spectrum and adequate and reasonably priced access to infrastructure and broadband backhaul, regional and national transport capacity to enable its efficient and cost-effective operation.
Examples of new wholesale networks in the wireless arena include Kenya’s proposed wholesale LTE-based mobile broadband network, Rwanda’s wholesale LTE network that is currently being deployed, and the proposed open access LTE network in Mexico.
One element in Mexico’s fundamental reform of its telecommunications sector initiated in 2013 is the proposed deployment of a wholesale-only open access LTE network in the 700 MHz (“digital dividend”) band (2x45 MHz, according to the Asian band plan). This is aimed at and introducing competition into a market, which is dominated by America Movil in both the mobile and fixed services spaces.
The availability of these frequencies is contingent on the completion of the transition to digital TV broadcasting. This shared network will also use the fibre infrastructure of the national electricity company (Comisión Federal de Electricidad) operated in a Public-Private Partnership (PPP) by the state-owned Telecomunicaciones de México.
The current schedule is that the last analogue TV broadcasts in cities in Mexico’s northern frontier region with the US will be shut down at the end of November 2014, with (ambitiously) an auction of 700 MHz frequencies to be held by the end of the year.
A number of key aspects have not yet been defined with regard to the rules applicable to this auction, such as who will be allowed to bid, and whether the entire 700MHz spectrum will be assigned to the wholesale network or some frequencies may be open to another operator. It is also unclear whether the wholesale-only network will also have access to 2.5GHz frequencies to give it a balanced portfolio (sub-1 GHz and high band) of frequencies suited to providing service in both densely populated and rural and remote regions of the country.
The wholesale-only LTE network proposed in Kenya has not made much progress since it was first mooted in 2010 with the intent of creating a Public-Private Partnership (PPP). The PPP would let contracts to build and operate the network at the lowest possible cost, and existing operators would buy wholesale services and bandwidth from the company. However, existing operators (especially the largest one, Safaricom) have been reluctant to make a commitment and would prefer to be awarded their own licenses for new spectrum instead of using these wholesale services. As of early April 2014, the Kenyan government has said (as it has in previous years) that the network will roll out “next year”, and that government is open to talks with operators about it.
Mobile operators in Kenya have been struggling to cope with an intense pricing war and one of them, Essar Telecom’s Yu Mobile, is exiting the business through a joint sale to Safaricom (which is interested mainly in its spectrum and other assets) and Airtel (which is looking to pick up its subscribers). This transaction has received initial approval, subject to conditions such as agreements to share infrastructure and ensure that all Yu subscribers retain their numbers and related contracts in the transition period, and that Airtel submits the proposed service level agreement for subscribers acquired from Yu Mobile.
At the same time, the smallest mobile operator Telkom Kenya (controlled by Orange) is reportedly reviewing its business. At time of writing, it is unclear whether these shifts in the competitive marketplace and among competitors will increase or reduce the likelihood of the establishment of an effective PPP consortium to deploy and operate the proposed wholesale-only, open access LTE network.
However, it seems unlikely that Safaricom - whose customer base represents a market share of over two-thirds of mobile users - will be any more willing to join the PPP than in the past. Yet, without Safaricom’s participation, the prospects for commercial viability of the wholesale-only network are bleak.
The prospects for implementation of a commercial open-access wholesale-only LTE network are further influenced by the role of Safaricom as contractor for a new LTE-based public safety and security network for the police. This contract may give Safaricom more leverage in obtaining additional spectrum for its own LTE deployments.
The Rwandan wholesale LTE network differs from the above mentioned pair of examples since it is actually already being deployed, and it involves a joint venture between the Rwandan government and a foreign operator, Korea Telecom (KT).
In June 2013, KT signed an agreement with government to build a national wholesale LTE network, for which it has secured spectrum and an exclusive license to operate the network for 25 years. Since 2008, KT has been entering into a growing number of arrangements with the Rwandan government to foster the country’s progress in ICT services and capabilities as well as network infrastructure.
The high-speed wireless broadband LTE network will exploit the national fibre optic cable network already deployed by KT, which seeks to boost access to various broadband services, including applications such as e-governance, e-banking, e-learning and e-health.
Korea Telecom will inject $140 million (about Rwf91 billion) in infrastructure and expertise, while government will provide fibre optic network assets, spectrum and a wholesale license. KT has forecast that the LTE project will cost about $260 million (about Rwf169 billion) over a period of five years, of which $140 million will be supplied by KT, with additional financial support from banks and other sources (for example, vendors) for the remaining $120 million.
Coverage of 95% of the population is targeted by end 2016. Eventually the KT/government joint venture Olleh Rwanda Network – will operate the combined wireless and fibre infrastructure as a wholesale network. Meanwhile, significant availability of services on this LTE network has been promised for August 2014 .
Rwanda’s mobile network operators have been invited to invest in the project, and it is expected that these companies and other Internet Service Providers (ISPs) will provide retail access to the end users.
Korea Telecom and Rwanda will also seek opportunities to extend the business model of the LTE joint programme to neighbouring countries.
The path to establishing and operating an open-access, wholesale-only LTE-based wireless network is problematic. This is largely due to the combinations of commercial and politically influential forces and players and because of inherent obstacles to the ultimate, financial viability of the concept.
The diversity of political and commercial factors and actors varies from country to country, so it is difficult to extrapolate experiences from one nation to another. Rwanda is, thus far, the only example of a possibly significant role for this kind of open access wireless network. Its implementation is based on a specific and rare (or difficult to reproduce) autocratic government-driven approach that involves the participation of a major foreign operator whose home country (Korea) is engaged in Rwanda in several areas of investment.
There is no clear path in South Africa for enabling or convincing investors to participate in the implementation of a Government-inspired, potentially attractive, albeit problematic solution of deploying an open-access wholesale-only LTE-based network for ensuring or strengthening mobile broadband competition at the retail level and maximising the potential efficiency of the use of scarce spectrum resources in the current South African environment for the benefit of consumers.
It seems at this stage more likely that any progress in improving the state of wireless broadband in South Africa over the next few years will have to be achieved through actions by individual actors, perhaps in partnership. These actions will necessarily target the exploitation of existing frequency allocations as effectively as possible, in the hope despite years of disappointment and delay that additional spectrum may eventually be allocated and assigned in a reasonably sensible manner.
Author – Martyn Roetter