5.38 We recognise that there are fixed costs involved in RANs. This implies that overall costs would tend to be lower with a smaller number of RANs. But this would be at the cost of end-to-end network competition.
63
See for example “Apple versus operators”, Financial Times, Lex column, 19 November 2010. 64
See for example “Telco Bullets: MOBILE DATA, VOD, VIV, THE CLOUD, APPLE, KPN”, Telecoms Research, Execution Noble, 22 November 2010.
5.39 We consider that if there were future network sharing agreements, it would still be possible for them to be structured such that the sharers have an incentive and ability to continue to compete as independent national wholesalers. It may be easier with LTE technology for national wholesalers sharing a network to maintain control over more dimensions of quality compared to 2G and 3G technology. It may also be possible for there to be spectrum sharing without compromising the independence of national wholesalers.
5.40 We see this as important for this competition assessment. It means that even if it were in consumers’ interests to have only a small number of networks, it would still be possible to have a larger number of national wholesalers competing.
5.41 We consider that as a result, we should focus in this competition assessment on ensuring effective competition in wholesale markets without taking a strong view on whether it may be in consumers’ interests to have sharing arrangements. In the current context we focus on spectrum holdings. As described above, we see holding rights to use spectrum directly as crucial for national wholesalers, and this will be directly affected by the outcome of the combined award.
5.42 We do not consider it necessary (or even possible) to take a firm view now on whether future possible sharing agreements may be in consumers’ interests. This is because this would depend on the detail of the sharing agreements. Due to its specific technical characteristics, such as the ability to differentiate the quality of service different customers receive, it may be easier for wholesalers sharing an LTE network to maintain control over more dimensions of quality compared those sharing networks using 2G and 3G technology.
5.43 Negotiating a network sharing agreement is a complex process, and such agreements only normally involve two wholesalers. We consider that spectrum holdings could affect the ease with which wholesalers could negotiate sharing arrangements. In particular, it may be easier for a wholesaler with a strong spectrum portfolio to negotiate acceptable commercial terms, because with a strong spectrum portfolio there may be a credible fall-back option of operating a network
independently. In contrast, with a weak spectrum portfolio such a fall-back option may be less credible (because, for example, a larger number of sites might be required rendering an independent network practically infeasible and/or resulting in an uncompetitive cost base). This could result in a weaker negotiating position for a holder of a weak spectrum portfolio.
5.44 We recognise that there is some risk for operators in bidding for spectrum without knowing whether they would be able to conclude network sharing negotiations. However, we consider that the current network and site sharing agreements illustrate that wholesalers are able to negotiate such arrangements. If there were advantages from network sharing, we would expect wholesalers to explore such arrangements (provided they remained compliant with competition law).
5.45 Any network or spectrum sharing arrangements would be subject to the requirements of competition law. The primary framework for considering the impact of RAN-sharing or network sharing agreements is UK or EU competition law. Under competition law, agreements between undertakings, decisions by associations of undertakings or concerted practices which have as their object or effect the prevention, restriction or distortion of competition are generally prohibited unless an exemption applies. It is for the parties to any of the above forms of agreements to assess whether their
empowered to conduct investigations and, where appropriate, to take steps to bring anti-competitive conduct to an end.
5.46 There are five main types of infrastructure and asset sharing arrangements that can take place between national wholesalers:
i) No sharing. Each wholesaler has its own spectrum, sites, RAN and core network. They operate independently of each other at a commercial and operational level. This would result in the highest degree of network competition, assuming the resulting number of networks is sustainable. This is how UK operators ran their GSM networks for a period of time.
ii) Site sharing. Two or more wholesalers share the location of their radio network sites (and typically facilities such as power supply) but each wholesaler has its own spectrum, RAN and core network. This approach offers efficiencies and potential leverage in the process of securing access to sites, reducing timescales and unit costs per operator for these activities. This is the type of arrangement in place today between O2 and Vodafone. This is likely to result in both operators having the same coverage footprint (if the agreement covers all sites nationally), therefore reducing network competition on that particular aspect. However, they can still have different approaches to their RAN (e.g. technologies in use at a given site, number of spectrum bands in use and power levels).
iii) RAN sharing. In addition to site sharing, two or more wholesalers share the RAN infrastructure (such as towers, technology, rooftop structures, and antennas), but each wholesaler has its own spectrum and core network. This approach offers further unit cost reductions per operator for the establishment and operation of the shared RAN. This is the type of arrangement in place today between
Everything Everywhere and H3G for their 3G RAN. The parties may still be able to differentiate certain aspects of their services that are controlled by the core network such as the provision of a given quality to certain user groups (e.g. higher speeds for premium users); they can decide how much of their respective spectrum resource they use at each site; and they retain sole management of commercially important information regarding the nature and extent of use of their spectrum resource.
iv) Spectrum sharing. In addition to RAN sharing, two or more wholesalers share their spectrum resources but retain separate core networks. This could risk further reduction of the commercial independence between the sharers, subject to the exact arrangements the parties put in place to manage the shared assets and associated company specific information. The parties also need to establish ways to arbitrate between conflicting demands on shared spectrum, for example which customers receive priority in case of congestion. At the same time,
spectrum sharing allows potential quality gains by combining spectrum into large channels in a given band (e.g. of 2x10MHz or 2x20MHz) when the sharers have smaller holdings each and by serving demand more efficiently across a larger resource (e.g. if two potential sharers operated independently, one might experience congestion in a given location while the other had spare capacity). There are currently no examples of this type of sharing in the UK for national wholesalers.
v) Complete sharing. Two or more wholesalers share their spectrum, sites, RAN and core network. There are currently no examples of such deep sharing in the UK.