There are good reasons for predicting that tier-one service providers will have to reduce operating costs by a significant amount, some say as much as 33 percent by about 2025.
One might well argue that initiatives to virtualize networks, automate functions, reduce headcount and change capital investment profiles are parts of that effort. Tier-one carriers have sold their tower portfolios, in many cases, to reduce capital intensity and free up cash.
But such moves come at a cost, namely higher than desired rental costs.
“It is imperative to reduce operating costs,” said Nicola Palmer, Verizon Wireless chief network officer.
“We need more alternatives to the traditional tower leasing model with the large incumbents,” said Susan Johnson, AT&T SVP. “It’s not cost-effective or sustainable.”
So the investment in Tillman Infrastructure is specifically intended to create additional competition in the tower leasing market and therefore lead to lower prices.
What is not so clear is what role tier-one mobile service providers might take in building small cell infrastructure themselves, rather than hiring contractors. So far, there seems little appetite to do so. On the other hand, it always is possible that either AT&T or Verizon could conclude that for some small cell placements, it is cost effectively to build rather than buy.
Also, there are reasons for suggesting mobile service providers--even as 5G is launched--really cannot boost long-term capital investment in networks beyond present levels.
There are many reasons, ranging from declining legacy revenues to a need to invest in growth initiatives outside the connectivity core. Pressure on gross revenues and profit margins also are key.
So small cell rentals might still make sense, compared to renting such sites from third parties. Still, the drive to reduce opex and capex could lead to direct efforts in the small cell area.
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