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Mobile Communications October 2018 Viewpoints

Technology Analyst: Michael Gold

Infrastructure Sharing

Why is this topic significant?

The outlook for companies' sharing mobile-communications infrastructure is uncertain, because strong reasons exist both for and against the idea.

Description

The GSM Association recently stated that "little guidance" exists about future spending to develop 5G networks. But McKinsey & Company recently stated that increased spending is "inevitable" because of needs to upgrade many base stations and to deploy new ones, including small cells in cities. The consultants expect that fundamental business principles will motivate mobile services to reduce fixed costs by sharing infrastructure with one another.

During recent years, cellular services spun out very many towers to private companies using sell-leaseback arrangements. According to analysts at TowerXchange, leasing companies—towercos—own the majority of the world's cell sites, with cellcos controlling many of the towercos. The analysts call the practice "balance sheet re-engineering." Most leases are for "steel and grass"—basically, real estate with some improvements, sometimes including electrical power. Multitenant base-station sites seem to be the exception rather than the rule. As a result, national roaming agreements constitute the most common forms of infrastructure sharing.

Three recent developments could affect the future of infrastructure sharing:

  • During April 2018, South Korean government officials announced that the major providers of mobile service there will share base stations to reduce costs of deploying 5G by about $1 billion.
  • During July 2018, China Tower raised about $7 billion in an initial public offering. The nation's three largest cellcos hold the majority of shares in the company.
  • In 2017, AT&T and Verizon jointly selected a start-up—Tillman Infrastructure—to build new cell sites, some of which are near existing leased sites. During late July 2018, institutional investors poured $500 million in capital into the company, which launched in 2016.

Implications

Service providers have been mainly motivated to differentiate, not to cooperate. Coverage can be one of the differentiators. Some regulators are concerned that infrastructure sharing reduces incentives to improve coverage. But other regulators see sharing as a way for spectrum holders to accelerate deployments. Municipalities might also encourage sharing in order to avoid excessive numbers of unsightly towers.

Companies that share also face a range of technical and implementation challenges. Business arrangements can be complex. A site may have limited electrical power, backhaul capacity, favorable positions for antennas, and other resources. And many of the technologies for sharing antennas, base stations, and core networks are nonstandard. Nevertheless, standards-based technologies for sharing active network elements are emerging, and 5G technology promises to enable differentiation via software-based service creation.

Impacts/Disruptions

In some cases, service providers will need to share in accord with regulatory mandates or practical limits on space—for example to provide coverage in indoor public places and dense urban environments where new cell sites will have limited availability. But use of shared infrastructure in very many other locations would help companies rein in costs of deploying 5G. Thus, a massive movement toward sharing of antennas, radios, computers, and other active infrastructure remains possible and perhaps inevitable. But such an outcome also remains uncertain because the business and technical challenges of sharing still tend to outweigh the cost advantage.

Research in cost engineering may help guide decisions to share or not to share. In 2017, a team led by Politecnico di Milano researchers published cost-aware algorithms for deciding whether to implement small cells and, if so, whether to share the cells.

Scale of Impact

  • Low
  • Medium
  • High
The scale of impact for this topic is: Medium

Time of Impact

  • Now
  • 5 Years
  • 10 Years
  • 15 Years
The time of impact for this topic is: 5 Years to 10 Years

Opportunities in the following industry areas:

Communications services, communications equipment, real estate, tower-operations specialists, structural engineering, surveying, investment banking

Relevant to the following Explorer Technology Areas:

Mobile Payments

Why is this topic significant?

Except in China, use of mobile phones to make payments and money transfers continues to account for only a small fraction of electronic payments overall. But China's experience demonstrates that adoption of mobile payments could see dramatic growth.

Description

Xinhua recently reported that people used mobile phones to move the equivalent of about $32 trillion through Chinese banks during 2017. Apparently, this figure is on the order of ten times greater than the rest of the world's mobile payments. Stores in China commonly accept payments that users make via smartphone apps. Phones are also a popular substitute for traditional red envelopes that contain gifts of cash for loved ones. Chinese banks handled about half the money traffic directly, and third parties such as Alibaba and Tencent were intermediaries for the other half.

Mobile-payment systems that see international use include Android Pay, Apple Pay, Mastercard Contactless, PayPal, Samsung Pay, Venmo, and a good many others. Many of the services make use of near-field-communication technology to support contactless payments. But the services provide little data about transaction volumes. Apple recently claimed it handled 1 billion individual transactions during the first three months of 2018. But Juniper Research indicates that the total value of contactless payments worldwide was less than $1 trillion in 2017 (and was mostly enabled by contactless cards). The figure is a small fraction of the more than $400 trillion in cashless payments that change hands annually worldwide.

In developing nations, a variety of branchless banking services allow people to conduct mobile transactions—in many cases, using text messages and thus requiring no smartphone. This style of service originated in Kenya but has spread widely across Africa and elsewhere, especially India and Pakistan. The GSM Association recently estimated that the total value of such transactions was the equivalent of $1 billion per day at the end of 2017.

Implications

Will mobile payments become as popular elsewhere as they are in China? Several factors could encourage increased adoption worldwide. Mobile payments have potential to substitute for a large volume of cash transactions, not just bank-card payments and bank-to-bank transfers. Users can greatly reduce needs to obtain and carry cash and to keep paper receipts. Banks are encouraging use of their mobile-payments systems, partly as a response to competition from third-party and branchless-banking systems. Policies in India promise to accelerate use of mobile payments there, in efforts to rein in counterfeiting. And in the United States at least, data indicate that use of mobile phones for personal finance is becoming popular among both low- and high-income households.

Some inhibiting factors will moderate rates of adoption, including extra transaction fees, lack of assurance that a given retailer or vendor will take a user's preferred form of mobile money, invasive privacy policies, and ongoing needs to carry bank cards and cash to conduct various kinds of transactions. As a result, many people have registered accounts but low levels of activity.

Impacts/Disruptions

Cellular services and third-party companies are capturing market share from banks. In response, traditional banks and payment processors are likely to take the threat very seriously. However, traditional players have not yet demonstrated the kind of technology leadership necessary to mount a fully competitive response. Mobile payment technologies will either stimulate innovation at banks or cause them to relinquish some of their market power.

Scale of Impact

  • Low
  • Medium
  • High
The scale of impact for this topic is: Medium to High

Time of Impact

  • Now
  • 5 Years
  • 10 Years
  • 15 Years
The time of impact for this topic is: 5 Years

Opportunities in the following industry areas:

Financial services, mobile-communications services, smartphone manufacturers, software developers, retail stores, app-based personal services

Relevant to the following Explorer Technology Areas: