What is passive infrastructure sharing?

What is passive infrastructure sharing?

Passive infrastructure sharing involves multiple operators sharing the same passive infrastructure as a means to reduce the costs associated with real estate, access rights and preparing sites for the requirements of active infrastructure.

As a general rule in the cellular industry, passive infrastructure sharing encompasses all the non-electronic elements required of a cell site. These can include: the tower itself, buildings or shelter, air conditioning plant, security, electricity generation capability for back-up, an electrical supply, technical premises and pylons.

The electronic elements required by a cell site such as base stations, microwave radio equipment, switches, antennae and transceivers don’t fall under the scope of passive infrastructure.

What advantages does it offer?

Although it doesn’t go as far as full infrastructure sharing, passive infrastructure sharing addresses many of the costs of establishing a cell site. In fact, some commentators report that it can address up to 60% of the cost of new site build, although more regularly figures of 30% to 50% are cited. In addition, because it confines its sharing to the facilities management and real-estate aspects of a cell site, it does not impinge on end-user service provision or require the same complexity of management that full sharing necessitates.

Full sharing schemes often fall down as network performance potentially could be affected by sharing. For example, a network sharing deal between Zain Zambia and MTN broke down last August because of concerns that the operators couldn’t guarantee quality. Zain has, however, remained committed to the sharing concept with its Kenyan operation and has agreed to share 300 base stations over 15 years in Kenya with Essar Telecom Kenya.

In developed markets, it’s a similar story with some very large players treading with caution. Vodafone and Telefonica announced a passive sharing deal earlier this year that will see the two companies share passive assets and will supersede Vodafone’s previous agreement with Orange. The two companies have argued that the key to the deal was its simplicity and they now plan to work in a carefully staged process towards greater cooperation between their networks with transmission the next aspect of the network that might be shared. However, both have no intention of a full network merger, arguing that retaining control of spectrum continues to be a key priority. That’s a classic example of passive infrastructure sharing in which sites and civil engineering are shared, but spectrum and equipment that affects the carrier’s ability to deliver quality of service or specific offerings are left out of the sharing equation.

How can passive sharing be managed?

Passive infrastructure sharing can be managed by the site owner who then acts as a landlord to its tenants. In some cases, that might involve a carrier making its facilities available to a competitor – in exchange for rental income. An example of this is Reliance Communications in India, which has demerged its real estate into a new business called Reliance Infratel and plans to have 55,000 towers by mid 2009.

Alternatively, a joint venture company may be formed between participants. An example of this is MBNL, the joint venture established between T-Mobile UK and 3 UK, which manages the operators’ 3G infrastructure – both passive and active – in its entirety. Another example confined to passive infrastructure is Indus Towers, a joint venture between Bharti Airtel, Vodafone Essar and Idea Cellular, which announced, in late 2007, they were to pool their individual tower ventures to form the world’s largest tower company. Finally, civil engineering companies are getting in on the act. Providers, such as GTL, build capacity and lease it to carriers. The company’s chief executive has gone on record stating that if two carriers locate at each tower the industry could save between $3 billion and $4 billion in India alone.

Management of infrastructure sharing throws up a series of concerns. There are complex issues to take into account such as taxation, apportioning costs and understanding how usage of such shared assets can be accurately accounted for within carriers’ existing business lines and practices. Issues such as depreciation and apportionment of maintenance costs are at the forefront of thrashing out an agreement and the more fluid, usage-based models of agreement are notoriously challenging to make workable.

Is passive sharing only applicable to mobile carriers?

It is also relevant to fixed-line operators pursuing network build in areas such as fibre to the home (FTTH). Approximately 60% of the capex required for FTTH is in ducts and trenching required to deliver fibre to the home. Some authorities are actively encouraging sharing in this light. For example, the New Zealand regulator has required all those who plan to be involved in the process to work together and expects to achieve cost savings of 38% as a result of the collaboration and cooperation being pursued in the country.

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