Europe Special: The heartland of carrier collaboration
Europe is probably the most advanced testing ground for carrier collaboration in the world, setting a pace that other regions will most likely end up copying at a future stage of their evolution. Guy Matthews reports.
Keep your friends close, but your enemies closer. So says Michael Corleone, the budding Mafia boss in Francis Ford Coppola’s 1974 movie The Godfather Part 2.
The moral applies to European telecoms just as much as to organised crime in 1950s America: sometimes it pays to cosy up to your greatest rival, before they cosy up with someone else and come after you.
Collaborations and partnerships between Europe’s big carrier names are nothing new, but never have they been quite as popular or as wide ranging as they are just now.
We’re seeing a rush of deals that go well beyond a simple ‘I resell yours, you resell mine’ (see box-out for some recent examples). Some of these collaborations, indeed, verge on consolidation by another name.
The drivers for this surge of activity are not difficult to figure out. Revenues across Europe are down, particularly from wired services, while costs are up, especially the cost of launching essential next-generation services on which the future of all carriers depends.
Partnerships, at their simplest, are a cheaper way to roll out new networks and services. And they are a way to combine different strengths so they add up to a whole bigger than the sum of the parts. Carrier A is strong in transport, so is getting into bed with Carrier B which is well invested in IP.
A means to an end
We are witnessing increasing creativity in these collaborations as carriers find new and untested ways of achieving their ends. Note, for example, that the recent network sharing agreement between Telefónica and Vodafone in the UK is about a lot more than infrastructure.
The pair hope, that through working together, to offer 4G nationwide across the UK a full two years before the regulatory requirement of 2017. The deal could also shave some £1 billion in development costs across the combined networks, perhaps within three years, believes analyst firm Ovum. If so, this would represent a 25% saving on what would have been spent had they remained apart.
Ovum believes, in fact, that more than half of all LTE roll-outs in the next five years will be based on shared networks. It considers it by no means unlikely that no European country will end up with more than two 4G networks, such are the economic realities behind coming up with a profitable offer in challenging new areas like next-generation cellular.
“With revenue opportunities not growing much, if at all, it’s become a matter of taking the cost out of the business one way or another, and that means things like network sharing and brand sharing,” says Stefan Zehle, CEO of Coleago Consulting, an independent analyst house that specialises in global telecoms. “We’re seeing more and more of that type of arrangement, as and where regulators permit it. Some see it as another form of consolidation by stealth. The different brands become in effect a bit like MVNOs on the joint network.”
Spectrum auctions for 4G may have actually accelerated a collaborative trend that was already there – with somewhat ironic regulatory complicity. Regulators in many European economies have worked out that the sharing of spectrum between four operators means that either one loses out, or two have to share. In the relatively mature LTE markets of Sweden and Denmark this has already happened.
In France too, the regulator has had to issue a special mandate to make sure Iliad can be a fourth LTE operator. Some regulators obviously feel, perhaps with misgivings, that collaboration is preferable to full merger, with the harsher detriment that that might involve for the consumer.
It’s not all about splitting the cost of 4G though. There are many other motivations for collaboration, and as many ways for collaboration to happen as there is imagination and will among carriers.
A collaboration does not, for example, have to be technical in nature, or involve any infrastructure, to be worthy of the name: “We’ve established partnerships that are primarily commercial, integrating the offer of another into ours so that there’s one proposition, one look and feel, but ultimately nothing more than a partnership,” says Henry Bohannon, head of Ethernet and IP services product management with COLT Telecom.
Collaboration between fixed and mobile worlds is rare, but welcome where it occurs, says Neil Coleman, head of marketing at mobile analytics vendor Actix, who anticipates mobile operators without Wifi networks partnering en masse with fixed-line providers which can offer that: “The idea here is that such infrastructure sharing will free up capex and opex to spend elsewhere, but the big challenge is ensuring that the shared network that results serves all interested parties, especially in terms of quality and ability to differentiate,” he says.
Together is better
Typically, collaboration will involve a new market and a fresh opportunity where two heads are better than one. Sometimes a new type of partnership is also needed. By way of example, TeliaSonera International Carrier has identified unified communications and video as an area where a whole new style of partnering is needed to establish a bridgehead.
“We wanted to look at demand for unified communications and video conferencing,” says Erik Hallberg, president of TeliaSonera International Carrier.
“Part of this world is cloud-based, and we’ll need to see huge integration between different types of company to manage that. We’ll need more cooperation between various players on the retail side, and also at the level of the backbone network too. There will be a need for fast and reliable cooperation between different infrastructures, and this will need to be about quality.”
One partnership that TeliaSonera has already struck up in this area is with Hibernia Media, the video transport arm of transatlantic cable operator Hibernia. The two are at work creating a jointly run fibre-based media network. As part of the deal, Hibernia Media has acquired TeliaSonera’s MediaConnect business, while the latter’s fibre backbone will form the core of the new network.
“The mixture of our on-net media PoPs and venues in the US, with TeliaSonera International Carrier’s reach to a broad market in Europe, gives customers access to content origination, aggregation and distribution channels over a fibre backbone,” says Bjarni Thorvardarson, chief executive officer for Hibernia Atlantic.
Another horizontal market where collaboration is starting to flourish is M2M. Macario Namie is VP of marketing with M2M platform specialist Jasper Wireless, and he believes M2M offers a new and crucial revenue opportunity for mobile operators around the world who are looking to grow and develop their M2M businesses, with collaboration the key to it all.
“To get the edge in this highly competitive market, speedy delivery to market of new products and services is vital and operators must enable multinational business customers to simply and deftly manage their connected device network at reduced operational costs,” he says.
“Clearly then carriers cannot dwell in the M2M market alone, and the requirements from enterprises demonstrate exactly why alliances are becoming more commonplace in the M2M arena.”
While few carriers stand aloof from the need to collaborate, not everyone is agreed about the appropriate depth of collaboration. European operator Interoute, for example, is heavily invested in the idea of the sharing and outsourcing of networks, with more than half of its wholesale revenues now stemming from these types of deal, including a major recent announcement with Telefónica International Wholesale Services (TIWS).
But Jonathan Wright, Interoute’s VP service provider, thinks things can go too far if both parties aren’t careful: “Collaboration tends to be opportunist, based on some new craze or new technology,” he says. “Many of these, when it comes down to it, are basically reseller arrangements. We don’t tend to go for anything much deeper than that. When you’re done with all the management and administration side of it, the lights are dimmed a bit. It needs a lot of time out to manage a JV model.”
He says Interoute’s ideal arrangement is agreeing a collaborative deal to allow the other party to get into a new market opportunity quicker: “It might take two or three years to get into, say, cloud on their own, so what a partnership delivers there is a ‘time to market’ advantage,” he says.
“But in some cases, a JV can send a funny message to your customers: ‘We’re competitors with these people, but we’re friends too’. It may well be that the customer chose you for a reason – because they didn’t like the other guys. They might question your judgment seeing you in bed with them.”
Wright says he can bring to mind more failed JVs than successful ones: “Unless you both really commit to the venture you don’t always get the synergies you envisaged,” he concludes.
So where to now?
If Europe is setting a pace of collaboration that other regions will most likely end up copying at a future stage of their evolution, it’s not unreasonable to ponder what the next wave of European collaboration might look like. Nor is there a better company to focus on than Orange which has probably done more pioneering in this area than any other name.
Yves Bellego, director of technology strategy with Orange Group, says the carrier has been involved with network sharing for a long time, driven by the need for cost efficiency, as well as by other factors, like the environment where the driver is reduction in the number of towers needed.
“So far though there’s not been one sharing solution that works for the whole of Europe,” he points out. “We operate a set of solutions from country to country. Why? For a host of legacy reasons and because of different technologies.”
It’s easier, says Bellego, to manage sharing on the passive side of a network, and a lot more complex with active equipment: “For the future I see us continuing to expand the sharing model across more European countries, moving collaboration beyond the passive to the active network. And I’d like us to be playing our part in greater mutualisation between countries also. We’d like to see one platform that can serve several countries. We also want to see some of the progress on voice collaboration replicated in data. Overall, collaboration makes sense, and it will continue to do so.”
It’s hard to disagree that the next big step must be full cross-border consolidation between currently disparate networks. Zehle of Coleago points out that at present a major carrier like Deutsche Telekom covers the whole of Germany, but it runs its business in neighbouring Austria separately: “This is a hangover from the old days when you weren’t allowed to run businesses across borders,” he says.
“But why do you need two CTOs and two billing systems? Maybe we’ll see more cross-border stuff before long. Look at the number of networks in Europe compared with the US – it stares you in the face, the need for one network than spans multiple countries. Why in 2012 can you make a call over 20 kilometres that crosses a border and it will cost you an arm and a leg, while a 500 kilometre call across a country is cheaper? Sooner or later someone will deal with this.”
Wider collaboration, not just across borders but between continents, is arguably the only sure way to beat the threat of the OTT sector. As an example of how this can work is already in existence in the form of the Rich Communication Services (RCS), an industry effort focussed on the use of the IP Multimedia Subsystem for providing global mobile phone communication services in areas like instant messaging, video sharing and buddy lists.
By enabling open communication between devices and networks, something similar to what Skype offers is achieved: “Even the biggest countries in Europe are small compared to the global market that Apple and Google can address,” says Zehle.
Maybe what we are defining as ‘partnership’ and ‘collaboration’ is less complicated than we imagine. After all, business is business, and the only partnership worth its salt is one that furthers the aim of the businesses involved.
Mutual interest will always find a way. And that’s where the world of the carrier and the world of The Godfather diverge. In telecoms, no one makes an offer that can’t be refused.
Recent collaboration between European carriers
Teléfonica’s O2 brand and Vodafone surprised Europe’s mobile services market in June 2012 with a UK network sharing agreement aimed at improving coverage and speeding up the roll-out of 4G infrastructure. To some degree, it mirrors the deal between Everything Everywhere (itself a collaboration between Orange and T-Mobile) and Three. The latter pairing will soon share around 18,000 masts, while O2 and Vodafone will have 18,500 between them.
Regulators have also approved Vodafone, Teléfonica and Everything Everywhere’s plan to share forces in the creation of a mobile commerce platform, off which will spin mobile payment transaction services and mobile marketing services.
Not to be outdone, Deutsche Telekom and France Telecom-Orange have together devised the BUYIN joint procurement telecoms equipment purchase programme. They will now manage all their wired and wireless procurement under one jointly-owned venture. The two have again dismissed rumours that this is a staging post in a mega-merger.
Not all the big collaborative action of the past year has been intra-European. Teléfonica Digital, a business unit set up by the Spanish has signed a wide-ranging agreement with UAE-based Etisalat for the development of mutual business opportunities, the licensing of products and the sharing of knowledge across a range of digital services. In particular it will focus on areas like M2M, financial services, device procurement, cloud computing, video services, digital advertising, eHealth and over-the-top communications.
M2M, it has been said, works best where regional collaboration is allied to local support. To this end we’ve seen a series of alliances, for example the Global M2M Association which includes France Telecom-Orange, Deutsche Telekom and TeliaSonera, and a comparable agreement between KPN, NTT DoCoMo, Rogers, SingTel, Telefónica, Telstra and VimpelCom.