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Site Builders Fleeced Operators

Mobile operators have been ripped off by contractors for the construction of basestation sites and are only just starting to realize the actual cost of building out a wireless WAN, according to Keith Slater, construction services manager at network building services firm Greenwoods Communications Ltd.

Slater, recently appointed to Greenwoods to work specifically with the mobile operators in the U.K., says the carriers have been massively overcharged for years by the companies doing the grunt work of building the thousands of sites that make up the networks. "When we talk to these mobile operators there is a real sense of vulnerability. They are in a quandary about how to complement their network rollout plans."

The main problem for the operators is that, while the carriers have increasingly tight capital expenditure budgets, they have little knowledge of the true costs involved in the basic construction required in network rollout. "Now more than ever, the capex costs have to be measurable in terms of site builds, but the operators have no way of knowing the real costs. Many sites have been over-specified, and the carriers have paid £60,000 [$96,000] when they should really have been paying about £38,000 [$61,000] for what they really need. I know what is really required, and it's actually not that much. Now the operators are starting to wise up to the real costs – the fleecing days are over."

And while Slater has direct experience of the U.K. market – Greenwoods has helped Hutchison 3G UK Ltd. and Vodafone Group plc (NYSE: VOD) build out their sites – he believes the situation is the same all over Europe.

He believes the market will increasingly outsource everything to do with network construction, maintenance, and management, and that the major network equipment vendors, such as LM Ericsson (Nasdaq: ERICY) and Nokia Corp. (NYSE: NOK), will be well positioned to provide such services. In fact, Ericsson already has such a deal, struck in July 2002 with mmO2 plc's Dutch business, O2 Netherlands. Under this deal, Ericsson will plan, design, and implement the carrier's network, as well as run it on a day-to-day basis. "The operators want an umbrella company that can handle a lot of the processes," claims the Greenwoods man.

While deals on this scale are rare at present, Slater says there is a growing trend to outsource more and more network operations elements to third parties. This is resulting in staff reductions at the operators, which cut the staff that mirror the responsibilities of the third-party providers.

Meanwhile, there is still evidence, according to Slater, that "the nuts and bolts of putting together mobile networks is often being done by people [at building construction firms] who should not be allowed to have anything to do with telecom infrastructure."

— Ray Le Maistre, European Editor, Unstrung
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