This blog post is the third in a series covering:
- Network impacts and operator actions resulting from COVID-19
- The long-term impacts on networks as our work-from-home culture grows
- Operators’ financial health and need to focus on network resiliency
- The advantages of network sharing as operators adapt to these changes
- New techniques in network sharing to better address challenges
Amid the well-covered home broadband traffic surges and shifting mobile usage patterns caused by the shelter-in-place precautions, network operators have adapted to a “semi-permanent” reality (it may take a while to settle on whatever the new normal will be). Even as some countries start to relax their health policies and cellular network traffic slowly begins to normalize, the financial fallout from halting a large portion of the economy over the past months will remain. The economic slowdown may disproportionately impact certain MNO customer segments (such as consumers and small/medium businesses) which will ultimately affect MNO financials. With a variety of predicted recovery patterns, the challenging economic environment will create both pressures and opportunities for MNOs to drive additional cost reductions.
For the mobile industry as a whole (~$1 trillion global revenue), a 2018 GSMA report estimated CapEx intensity (as a % of revenue) at 15.8% and OpEx intensity at 69.5%. The reduced CapEx and OpEx intensity is nothing new for MNOs and innovative solution providers. Network-related expenditures are a natural target because they comprise a large part of the total. The pandemic has created the perfect environment to accelerate these cost-reduction initiatives, which are based on 5G-enabling technology trends and cost evolutions that have been materializing as 5G becomes a reality.
Traffic increase reality
Home broadband service providers have borne the brunt of traffic increases from rampant home Internet consumption and mobile devices connecting to Wi-Fi. As a result, it is likely that MNOs have seen an overall decrease in their peak hour network utilization. MNOs that reported higher traffic did not necessarily see an increase in peak loads requiring capacity to be expanded. In general, this means there was enough capacity to meet demand growth in non-peak (lower load) hours. As a result, many MNOs have likely gotten a welcomed respite from the need to continually deploy CapEx and OpEx to add LTE radio network capacity. There are exceptions; for example, certain customer segments’ sole reliance on mobile broadband connections to meet their increased connectivity needs via hotspot tethering at home has caused MNOs to add capacity.
MNO efforts to stay competitive or ahead of the curve for LTE capacity addition, LTE coverage extension, and the race toward 5G have meant many MNOs have hardly taken their feet off the gas pedal. Both LTE and 5G networks seem to be receiving tangible CapEx through the middle part of this decade (GSMA Intelligence’s 2025 CapEx Outlook: Financing in the 5G Era, March 2020). MNOs will continuously need to decide how to allocate network resources, given utilization realities. With abounding economic uncertainty, MNOs must be thinking through diverse scenarios.
Mobile connectivity is seen by consumers as an essential service and will not be as substantially affected by the pandemic as other industries have. Globally, the International Monetary Fund predicted overall 3% economic contraction in 2020. Nevertheless, MNOs could start feeling some peripheral pressures from the following reasons:
- Leniency in collections for vulnerable populations based on customer retention tactics by MNOs or as mandated by national regulators.
- Shuttered/discontinued MNO retail stores during the quarantine period, which have affected subscriber growth and device sales.
- According to Juniper Research, with 80% of travel cancelled, MNOs will incur international roaming revenue losses of up to $25B in the next nine months.
- With many people barely leaving their homes and mounting job losses, some subscribers may have downgraded to cheaper service plans.
- MNO’s SMB customers will be strained by altered business operations, and corporate mobile service contracts may be terminated or modified.
COVID-19 mobile service revenue implications will not be fully known until MNOs report quarterly earnings (the recent reports only showed a portion of March in the crisis for calendar Q1). However, Omdia predicted a 4.1% annual revenue decrease globally from 2019-2020 with Europe suffering the highest revenue decrease of 9.1%.
Network cost reduction approaches
With the forecasted revenue decreases and a lot of uncertainty regarding the shape and timing of an economic recovery, MNOs are prudent to enact cost reductions across the board to conserve cash and shore up reserves, should they be needed.
Operators such as Telenor have used this opportunity to decrease their OpEx and CapEx intensity by utilizing automation, big data, AI and network virtualization technologies. These different approaches play off of each other to drive out significant costs throughout the network. Telenor is forecasting that its CapEx intensity will go from 15% to 13%, which equates to $300M savings. Telenor’s efforts to automate and virtualize operations means that CapEx decreases will not be disruptive to its operations, which are increasingly becoming unmanned or “touch-free.” By 2023, Telenor wants to have “fully automated and predictive customer-centric operations” across its global operations, according to Telenor’s CEO Sigve Brekke. The operator estimates 15% of its workforce would become expendable.
The European and Asian operator’s operational efficiency programs have also led to a 4% year-over-year decrease in Q1 in OpEx. OpEx savings are considerably larger than CapEx savings since MNOs spend roughly 4x more on OpEx (69.5% intensity) than CapEx (15.8% intensity). Telenor’s CapEx efficiency has benefitted from moving to a global procurement model as well as using machine learning to analyze traffic patterns. “One clever system allows Telenor to share traffic between base stations so that particular sites do not become overloaded,” said Brekke. “That is enabling us to handle a traffic increase without increasing capacity investment.’” Similarly, Telecom Italia has also indicated it would offset shortfalls in revenue and earnings through “incremental efficiencies” in CapEx and OpEx.
Rakuten, the Japanese Internet juggernaut, has spoken about the ability to operate its newly-launched highly virtualized and open network with an operations staff of just 100 people, the ability to configure and deploy a cell site in 8 minutes, and about 40% less TCO than a traditional network. Rakuten has its eyes set on disrupting more than just Japan by offering their mobile platform to operators worldwide. Along the same lines, Finnish MNO, Elisa, has also commercialized its internally-developed automation tools and is offering them to other MNOs under the Elisa Automate brand. As a result, many vendors with wide-ranging innovative solutions to create efficiencies are gearing up for an increased MNO deployment pace.
Once MNOs implement the wide-ranging initiatives to wring out costs from their networks after the crisis subsides, there will be no turning back to anything resembling pre-COVID modus operandi. Key ecosystem players have been contemplating future network paradigms for many years and the future they mapped out is happening now. These disruptive shifts would have ushered this new reality soon anyways, but it seems like the pandemic has materially hastened the evolution. The mindset needed to navigate the pandemic will instill in MNOs an earlier sense of need for resilience and openness towards innovative solutions.
With a desire to achieve sizable and sustainable efficiency gains, MNOs may increasingly consider their underutilized network assets as a source for further value creation and CapEx/OpEx reduction. If so, we at BandwidthX have a great solution for them – Xpacity.