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Report: Network sharing deals rife with surmountable stumbling blocks

Network sharing has been around the wireless industry since nearly its inception as carriers have found that by sharing portions of their network deployments with rivals they have been able to cut costs and speed coverage roll outs. However, along with those benefits come competitive compromises that have in many cases squandered such opportunities.

Arthur D. Little recently released a report, “Network cooperation: Making it work and creating value,” finding that while such arrangements are on the rise, there are substantial hurdles that need to be overcome for such agreements to see the light of day.

“In a given market, realistically, only a few network-sharing configurations can be successful, given the dynamics between the market leader and smaller operators, the role of the network in gaining market advantage and regulatory considerations,” the report noted. “Even after obtaining alignment on the key strategic and financial principles of a network-sharing venture, misalignment on operational aspects during implementation can jeopardize the deal.”

Glen Peres, manager at Arthur D. Little’s Telecommunications, Information, Media and Electronics practice and co-author of the report, explained that a key component for such deals to be completed is to have the right leadership within the organizations taking charge.

“These deals most often happen when the CEO is the one leading the initiative,” Peres explained. “They are the ones who typically get the right balance.”

Peres explained that often times the CTO will look at such an arrangement and look only at the operating expenses involved in such agreements, which often muddles the negotiation process by not looking at the bigger picture.

“The network is like the CTO’s child,” Peres said. “They have seen it grow and don’t want other meddling with its operation.”

The breadth of such arrangements can run the gamut of something basic like simply sharing tower sites, shelter and power and those sites all the way up to a full network merger that includes all aspects of a network deployment. The deeper the integration, the greater need there is for strong leadership at each organization to ensure that an agreement is made.

Another aspect of such an arrangement that often trips up the negotiations is the financial liability. Trying to come to an agreement on just how much of a value each company’s contribution to the project is often a significant stumbling block as well as determining the potential value if one member of the venture wants to back out of the deal.

“In our past project work, we have seen that asymmetries have been effectively dealt with by negotiating fair compensation for use of the asymmetric assets of one MNO by the other MNO,” the report explained. “The compensation should take into consideration the large upfront [capital expenditures] that was put in by the first MNO, the potential risk of the investment of the first MNO, and fair utilization of the asset for both MNOs going forward.”

Peres also explained that common to all negotiations regardless of where they take place, it’s often important for both parties to realize that they are going to come out of the process not 100% satisfied with the end result.

“If both sides are completely happy, then something is probably not right with the deal,” Peres added.

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