Less is more: optimising synergies from merging MNOs can deliver network OpEx savings of 30%

When mobile network operators (MNOs) merge, the greatest synergy arises from consolidating the two networks of cell sites into one – reducing cost, improving coverage and increasing capacity. Sounds seamless, but how is this actually achieved? Andrew Wright, Partner at Aetha Consulting has analysed optimising synergies for several clients, including a sizeable merger this year in South East Asia.

While there are substantial financial gains from merging networks, calculating the benefits and planning the consolidation requires drilling down to the detail and careful consideration of key and complex contributing factors.

Retaining and removing cell sites

The potential prize from network synergies has multiple dimensions:

  • How many sites from the combined network of sites can be removed without losing coverage?
  • How many sites must be retained from the combined network to provide sufficient capacity?
  • How many additional sites should be retained to meet future capacity needs?

In our experience of optimising merger synergies, careful decision-modelling of network capacity can answer these questions – taking into account long-term traffic forecasts, future spectrum availability and the capabilities of 5G equipment. A detailed geographic study of the sites will help to identify which retained sites will maintain coverage and provide sufficient capacity in the right locations. One approach is to analyse ‘matched pairs’ of nearby sites, consisting of one site from each network. A simple geo-analysis can compile the list of matched site-pairs before working out which site in each pair to retain.

Figure 1: Rationalising the two site grids

Figure 1: Rationalising the two site grids

This decision is usually informed by technical and financial analyses. The technical analysis must take into account key parameters such as site height, capacity for expansion, backhaul type (e.g., is fibre available), EMF constraints, and whether the site is a significant network node, such as a transmission hub.

The financial analysis comes down to the Present Value (PV) of future costs for retaining each site and disposing of the other. Key components are: level of lease/rent for each site, cost of removal of the site to be taken out, and, significantly, the cost of continued lease payments on the site to be removed up to the point where the lease can be exited.

The cost of lease payments can be pivotal. If the merging networks make extensive use of TowerCo sites, they are likely to have long lock-ins on tower leases. These delay the point at which savings can be achieved, becoming the dominant factor in the cost analysis – the merged network is likely to retain the site with the longest lock-in and dispose of the other site. Signing up to a long-term deal might pocket the best price in the moment, but seriously limit future options in the event of a merger.

Reorganising networks

In the best-case scenario, both networks might use the same RAN vendor, meaning equipment at each retained cell site can continue to be used. However, typically merging operators will have different equipment vendors and, because it’s not practical to mix RAN vendors in a geographic area, this leads to many equipment moves and changes. Each geographic area must be re-equipped with RAN equipment from a single vendor, which can be approached two ways:

  • Select one vendor and scrap the other – in which case quite a lot of new RAN equipment from the chosen vendor will be required
  • Perform a significant equipment move to form geographically contiguous areas using the equipment of each vendor, requiring less new equipment, but a lot of costs to decommission and recommission equipment in different locations.

Deciding the approach emerges from two exercises: cost modelling and procurement. Where possible, and where the vendor is willing to bear part of the cost, it makes sense to combine the RAN consolidation with an equipment swap – which can also provide an opportunity to future-proof the RAN, for example preparing for 5G.

Taking the long view

The next step is an implementation plan. The challenge here is editing two RANs, two cores and two IT stacks to one of each. RAN consolidation takes time – sites can’t be removed, nor can equipment be moved or recommissioned overnight. In truth, re-engineering the RAN into a single network can take several years.

The problem can be mitigated. Both core networks can be kept and the IT stack running while the RAN is re-engineered. Sites on the RANs can be enabled to connect to both core sites to carry the traffic of all subscribers using the Multi-Operator Core Network (MOCN) feature, and the RAN site-pairs can be gradually consolidated in areas where the MOCN is enabled. While the RAN is being consolidated, the capacity of one core and one IT stack can be increased, and when the consolidation is complete subscribers can be migrated to the expanded core and IT stack before removing the others.

Calculating the benefits

How large are the savings? In our experience of working for a number of international clients OpEx savings can approach one third of the combined site OpEx of the two merging networks, but will often be lower due the effect of TowerCo lock-ins. The CapEx savings depend on the point in the technology cycle at which the merger occurs, but in the best case – such as merging immediately before a major network deployment – it can be almost a ‘two for one’ on CapEx, delivering 50% savings. Spectrum savings vary considerably, not least due to the very different approaches of regulators in different markets, but one larger merged network requires less spectrum than two smaller networks.

Optimising synergies from merging MNOs won’t bring instant gratification. Securing substantial savings requires well-informed and detailed decision-making to address the complex reengineering of the network. Then benefits will emerge – over time.

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Aetha Consulting supports leading players in the telecoms industry to make major strategic and regulatory decisions. We provide high-quality advice, supported by rigorous quantitative analysis, to help our clients solve their most pressing issues. With our strong track record in both developed and emerging markets, our footprint is global. For more information, please visit www.aethaconsulting.com

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