Communications

Mobile Network Sharing

Addressing the challenges Think PwC*

*connectedthinking

Mobile Network Sharing Maximise the use of your resources

For mobile operators facing intensifying market competition and mounting pressures on costs and pricing, the idea of sharing network infrastructure with other providers brings major attractions. Today, with the focus of mobile operators market differentiation shifting away from network coverage and towards branding and service design, network sharing is more firmly on the agenda than ever. As well as opening the way to potential reductions in both operating and capital costs, network sharing can help an operator focus more effectively on marketing and customer satisfaction, by reducing the internal burden of network management. Yet, despite these attractions, successful network sharing deals remain few and far between, and efforts to set them up remain fraught with pitfalls and barriers.

PricewaterhouseCoopers can help.

Network sharing should deliver lower costs. How can operators overcome the significant challenges associated with actually doing it?
Operators networks are becoming irrelevant as a market differentiator yet operators are traditionally wedded to their networks. The value of their respective contributions is therefore an emotive issue which can have complex accounting, regulatory and organisational consequences.

Potential Issues for Operators

Do your customers know /care whose network delivers a service? Is it a differentiator?

Achievable Benefits
Strategic and technical rational assessment of network sharing Know the value of the operators contribution Understanding the negotiating strengths and weaknesses Structuring options and their implications for future reporting, tax and disclosure

Market

Organisation
How will your organisation react to working with a previous enemy? Will there be cost saving redundancies?

CEO Agenda

Regulation
How will you charge for network sharing? Will these be regulated? How will regulation change as the number of network falls?

Assessment of the potential regulatory response Managing organisational change and governance Balance between delivery and cost savings Structured transfer pricing Competition concerns addressed

Shareholders

How will your shareholders react to change in asset ownership?

PwC can provide wide ranging support to operators across the Network Sharing process
Strategic drivers Objectives Assessment Requirements How PwC can help

Business Case

Regulation

1. What is the benefit of sharing? 2. Who is the optimal partner?

Strategic Rationale

Valuation Methodology Competition & Negotiation

Valuation of stakes and contribution

Legal structure impact

3. How will I negotiate? 4. Will the charging be regulated?

Strategy Development ! Technology Strategy ! Partnering strategy ! Vendor / sourcing strategy ! Business structure ! Business planning and modelling ! Regulatory / Competition Advice Business Transformation ! Business processes, controls & KPIs ! Programme and change management Accounting and Tax ! Pre-deal accounting policies assessment / technical support ! Taxation advice in all phases of the deal

Operational model

Tax implications

5. Will the pricing mechanism create the right incentives? 6. How will accounts be affected? 7. Will there be redundancies?

Transfer Pricing

Exit Options/ future strategic options

Regulation

Accounting/ reporting

Accounting & structure

Competitive response

Vendor/ outsourcing strategy

8. Will my quality of service be affected?

Organisation impact

Our methodology is tailored to your needs: the first step in a network sharing project is understanding the stakeholders key concerns
Business Case
What are the business benefits? Will competitive advantage be maintained?

Regulation
Is there a risk of creating a bottleneck with consequent obligations to serve MVNOs?
Does this create new asymmetries between operators or will the shared RAN be the standard for all operators?
What will be the effect on Mobile Termination Rates?
Is the financial and operational information granular enough to identify the assets to be transferred?

Has a technical proof of concept been completed?

What will break the deal?

To what extent is the information contributed by the other party consistent/comparable?

Are there overstated assets or understated liabilities?

Is the partner selected the best one to help drive/achieve the objectives? Can competitors combine to outperform cost savings?

What would NRAs response be?

How will each party gain assurance that the fair value methodology is transparent and equitable to both parties?
Will the books and records support the accounting policy and reporting requirements of both parties?

Due Diligence

Transition and Exit

Is there a viable exit strategy?

Understand key issues

Valuation / Accounting of Assets

Scope Analyse Implement

Tax
Can the equipment be dismantled?
How will governance structure work in practice?

How do you avoid the structure of the agreement limiting future strategic options?
What is the people and reward strategy going forward and to which business does it link? What are the leasehold liabilities on the land to be transferred?

What are the savings to be achieved in the the area of logistics and how will this work? Who provides back office systems and support and how are they charged? What are the potential savings to be achieved by combining the purchasing power of the two entities? How will this work?

What are the potential models for How are you implementation and do they fit the going to manage commercial requirements? areas of historic liabilities e.g. environmental? What is being How are you going to ring fence transferred? Assets, confidential information and land, going intellectual property? concern? How will funding operate and what happens if one party cannot fund? What happens if either party underperforms in its service provision? What about chain liability?

Operating Model

Legal Impact

Case Study
Comprehensive support across the Network Sharing Deal
Network Sharing Strategy
Scope
Site RAN Spectrum Core

Other scope issues

3G or 2G+3G Femtocells Continuity of Service Growth vs Existing

Spectrum Tower Base Station Backhaul BSC/RNC Core

2G

3G

2G

3G

BSC

RNC

BSC

RNC

Data Review
Key focus areas:
Fixed assets, including AuC and inventory Site upgrade costs Site specific operational expenditure Metro-layer overlay / Dark Fibre Support and maintenance Review data supplied by other operator to a virtual data room Reconciliation of information in the datarooms Not a typical due diligence: competition law restrictions
Room for Negotiation Operator 1 Network Operator 2 Network Operator 1 Pays 2.8 3.0 Best 1.0 Worst 3.0 4.0 4.3 Worst 2.8 Best 1.2

Network Costs bn - Ilustrative

Own Traffic All Traffic Cost Increment 1.2 1.3
Best Network Optional Total Cost 4.0

Operator 2 Pays

Valuation
Forward-looking valuation
Synergies, and value relative to 2nd best option define range for negotiation Knowledge is key: understanding both sides thinking and value drivers Substantial range for negotiation Do both have the same view about the Network Costs? Are there other scenarios? E.g. a 2nd Best option of combining with ANO would reduce the negotiation range. Are all of the costs captured, and are some of these asymmetric between the operators? The Best option may be a combination of networks resulting in a lower total cost.

Our Services
Strategy Development
Technology Strategy Partnering strategy Vendor / sourcing strategy Business structure Business planning and modelling Regulatory / Competition Advice

Business Transformation
Business processes, controls & KPIs Programme and change management

Accounting and Tax

Pre-deal accounting policies assessment / technical support Taxation advice in all phases of the deal

For additional information, please contact:

Koen Hens Partner Assurance Communications Industry Leader PwC Belgium +32 2 710 72 28 koen.hens@pwc.be Axel Smits Partner Tax & Legal Services - Income Tax TLS Communications Industry Leader PwC Belgium +32 3 259 31 20 axel.smits@pwc.be Marc Sel Direct Advisory IT Effectiveness IT Security & Compliance PwC Belgium +32 3 259 34 10 marc.sel@pwc.be

www.pwc.com
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