5G growing pains spur neutral-host interest, says new survey

UK and Irish enthusiasm for neutral host is running high, according to a new report. That does not mean lodging with a Swiss hotelier amid World War III, as attractive as that might sound, but instead refers to the use of shared and independently owned infrastructure to roll out telecom networks. The big idea is to ease deployment challenges and make the whole thing a lot more economically viable. Boldyn Networks commissioned Sapio Research to conduct a survey gauging interest in the neutral-host model and found that about three quarters of respondents were likely to consider it as a 5G deployment option.

The first thing to note is that Boldyn Networks is itself a neutral-host provider and therefore is unlikely to say the model holds all the appeal of trench warfare. But its vested interest does not invalidate the research, which is supported by some recent market developments. Moves by some of Europe's biggest 5G operators to spin off their towers – the passive infrastructure on which telcos hang their basestations – and the concomitant emergence of independent "towercos" have gathered pace amid economic and other challenges. Cellnex, a neutral-host towerco headquartered in Spain, is now one of the biggest telecom infrastructure players in Europe.

The backdrop is an especially downtrodden-looking 5G market. Sales growth has more or less dried up at big telcos, network rollout remains expensive and costs are rising, whether for energy, staff or equipment. Ericsson and Nokia, the UK's two big 5G vendors, have both recently complained about more parsimonious customers. On a constant-currency basis, Ericsson's headline sales fell a tenth year-on-year for its recent third quarter, and Nokia's were down 15%. Each company is cutting thousands of jobs.

It is not because organizations doubt the importance of 5G, according to the Sapio Research, which surveyed 200 telecom decision makers, 200 5G enterprise experts and 200 public-sector IT decision makers across the UK and Ireland and the US. Some 88% of US-based public and private companies said 5G had a direct impact on their performance, versus 64% in the UK and Ireland. Vendors may take encouragement from the disparity, which could reflect greater 5G availability in the US.

Yet an astonishing 96% of all respondents said they had faced challenges in deploying 5G. The main issues were related to expense and the deployment of supporting fiber networks, with almost a third of respondents saying the capital-expenditure burden was the chief impediment. Some 80% of respondents expect to exceed their planned spend in rolling out 5G. Navigating the political and regulatory environment was also cited as a big problem.

From landlord to tenant

Hence interest in deploying networks via neutral-host providers. A company like Cellnex, which has spent billions on acquiring towers from Europe's traditional telcos, would essentially rent space on its masts to multiple operators or tenants. Rather than having to invest in steel and concrete, these tenants then have only to worry about buying basestations and paying rent. There should be less duplication of infrastructure, and the economics should be favorable if there are multiple tenants per site.

Unsurprisingly, cost stood out as the main reason for considering a neutral-host provider in Sapio's survey. Many respondents also reckoned a neutral-host model would be more sustainable and allow for a simpler 5G deployment than doing rollout in the usual manner. Despite all this, many operators look undecided on what to do about so-called "densification," the process of adding sites to improve 5G availability. Just 65% of telecom decision makers, for instance, told Sapio they had a "clear densification strategy."

One possible issue is that prominent neutral hosts have tended to focus so far on buying existing infrastructure rather than building new sites. This does not bring densification per se but merely changes the owner of what was already there. Cellnex talks extensively about "build-to-suit" programs in its last annual report, but it had run up a huge net debt of about €20.7 billion (US$22.2 billion) by the end of June, after a years-long shopping spree, and reported a €193 million ($297 million) net loss for the first six months of the year on revenues of about €2 billion ($2.2 billion).

Authorities might also be wary on competition grounds, viewing some network-sharing models as consolidation through the back door. The approach makes economic sense only if there are fewer sustainable neutral hosts than there are 5G operators. Yet this may generate concern network markets will be less competitive in a neutral-host future, with just a couple of big firms responsible for all the underlying infrastructure. Changing business models could exacerbate that concern. Cellnex, for instance, has started to lease active electronics rather than just passive equipment. For all the apparent interest, neutral-host success is no given.