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5G LTE Network Technologies RAN Spetrum and Auctions

Mexican shared network goes to only bidder

Altran wins deal to deploy wholesale-only LTE network in 700 MHz, but there are still high barriers to shared RANs, and so to mobile shake-up

For 5G, network sharing will be essential to make very dense, flexible RANs commercially viable. Yet it is hard to imagine this vision becoming reality in many areas, if operators and regulators cannot get past the first hurdle of sharing a conventional 4G macro RAN effectively. Many of the problems are illustrated in Mexico, where the government has finally awarded a licence to build and operate a nationwide wholesale mobile network, to the only bidder.

There were high hopes that this approach would introduce new competition and services to Latin America’s second largest telecoms market, but one where innovation has been limited by the stranglehold of incumbent America Movil. The dominance of that company has been attacked in the past two years by a new regulator, which has forced the firm to divest some assets, and by the entry of AT&T.

And the wholesale network could support new service providers such as cablecos, as well as MNOs, or could enable AT&T – which acquired two smaller mobile carriers, Iusacell and Nextel – to extend its capacity (its purchase of DirecTV also brought some Mexican activities).

But the shared network may also be too little too late, and the tortured process of awarding the contract has highlighted the barriers to the government-mandated wholesale approach.

The eventual winner is the Altan consortium, the only group still in the running for the deal. Altan is led by three funds owned by Morgan Stanley, the World Bank, and Eugenio Galdon. Galdon is the founder of Spain’s Grupo Multitel, which supplies equipment and services to cable providers, and the cable industry links are probably the best hope that this will finally usher in some new thinking in Mexico. In other countries, notably north of the border in the US, cablecos are harnessing MVNO deals, wholesale networks and WiFi-first to add wireless elements to their triple play deals and to mount significant potential challenges to the MNOs and telcos.

Altan will gain subsidized access to Mexico’s 700 MHz spectrum, the prime band for achieving wide area LTE coverage cost-effectively. By keeping this chunk of spectrum for the wholesale network rather than offering it to MNOs at auction, the Mexican government signalled its determination to shake up the market.

The winning bidder also gains a 20-year public-private partnership (PPP) to build out and operate a wholesale LTE network. The network is expected to cost around $7bn and Altan has promised to cover 92.2% of the population, more than the 85% minimum target specified in the tender. The network must begin commercial operations no later than March 31 2018, and will cover 30% of the population at launch.

Mexico’s secretary of communications and transport (SCT), Gerardo Ruiz Esparza, described the tender result as “an historic moment for the Government of the Republic, society as a whole and the Mexican telecommunications industry”.

“We are absolutely satisfied with the result,” Galdon said in a statement on Thursday. “The investors that make up the group are showing their confidence and their interest in the future and present of the country.”

But the difficulty of competing with established incumbents – especially with a network which will not even start service for another 16 months – is reflected in the lack of interest in the wholesale tender. The only other bidder was a group led by Rivada Networks, which was disqualified after it failed to provide financial guarantees when it submitted its bid, a decision the organization is still challenging.

If cablecos and other providers get sufficiently interested in multiplay services, there should be rising custom for a wholesale network, but in many areas it is tough to make a business case for investing billions of dollars if the MNOs do not become clients in their own right. The length of time for new entrants to generate significant revenue, and their small market share, are significant barriers to breaking down the role of the established majors with their long history of investment in tightly controlled RANs.

And in most cases they are reluctant to weaken that control, even in the interests of slashing their capex and opex budgets. In Russia, a plan to create an LTE network in which the three main MNOs, and national telco Rostelecom, would invest and which they would share, ended up with one of those MNOs, MegaFon, acquiring Scartel, which was hosting the RAN, and the assets. In Kenya, there is new competition, but it comes from newly approved MVNOs, not from a shared LTE plan which was dragged down by MNO rivalries and regulatory disputes.

Meanwhile, the Mexican market, too, is being changed by the activities of tier one operators, not by wholesale networks and new entrants. In a conventional auction for AWS (1.7 GHz/2.1 GHz) spectrum earlier this year, AT&T consolidated its presence by paying $57m for new airwaves, though its outlay was only half that of America Movil, which spent $117m. The sale should increase the amount of available mobile broadband spectrum in the country by 29%, offering licences in the 1.7 GHz/2.1 GHz band.

Via its acquisitions of Iusacell and Nextel Mexico, and a $3bn network expansion plan, AT&T is equipped to capture 20% of the mobile market by 2020, according to analysts at HSBC, but it does not believe the US operator will turn a profit in Mexico until 2019 (a year later than AT&T itself says). AT&T is currently in third place in the mobile market, well behind America Movil and Telefonica.

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