Operators are excited by the revenue growth opportunity from the adoption of multi-device data services, but the associated cost increases are outpacing revenue growth and challenging profitability. In response, some operators are already adopting transformational partnerships, and we see three major areas where partnership models are likely to further evolve in 2012. However, this evolution will raise a number of new strategic questions for operators.
Vendor partnerships will get deeper. Operators have already embraced network and IT outsourcing as one area for business transformation. A notable example is Airtel in India, which has pioneered extreme models of network outsourcing through capacity-based deals. As innovations are made in network architectures, partnership models with vendors will get deeper: for example, one operator in South-East Asia is currently evaluating a cloud RAN solution where a vendor is offering the equipment and the fibre connectivity between the centrally hosted equipment and tower sites.
Examples like this show that vendors are demonstrating greater willingness for deeper relationships, though operators are concerned about being committed to single vendors not only for equipment, but also for connectivity.
Network-sharing partnerships will get deeper – and will occur between players of different sizes. Passive network sharing is already the norm, but increasingly there is a recognition that for a transformational change in cost structure, deep passive sharing (including backhaul and transmission) and active RAN sharing are fundamental. Active RAN sharing has typically occurred between operators of similar size, especially in spectrum-scarce environments and for greenfield deployments, such as in the case of Hutchison and PCCW in Hong Kong. However, the recent RAN-share announcement from Maxis and U-Mobile, Malaysia demonstrates a newer trend of partnerships between unequal-sized players. Moreover, the agreement also covers 3G networks.
Such agreements between two unequal partners for legacy networks require practical decision-making on how to share the benefits from sharing networks.
Device vendors will become partners to enable data services. In developed markets, handset subsidies are driving the rapid adoption of 3G devices, but in developing markets encouraging the take-up of 3G devices remains a significant challenge as customers are mainly prepaid. To accelerate the adoption of 3G devices, operators are increasingly partnering with vendors: e.g. Smart in the Philippines with Samsung/ZTE to launch their Netphone service. We expect similar partnerships to become more common in 2012 and, more significantly, to extend to strong and innovative local handset vendors such as Nexian in Indonesia.
As operators look for handset partnerships, they also need to assess the role they are going to play in the device value chain in order to accelerate 3G handset take-up, and also the adoption of services.