MVNO Model Spreads to Fixed Networks Business

The mobile virtual network operator business model and fixed network structural separation are analogous ways of enabling retail services in either mobile or fixed network domains. In each case, the supplier of retail services operates using wholesale capacity and services purchased from another underlying network owner. 

The advantage for retailers is lower capital investment and faster time to market, typically paired with efforts to achieve lower operating costs. 

But wider use of the asset-light model is spreading in fixed network access and data center segments of the business. More service providers are seeing either joint ventures or asset sales as ways of speeding deployment of expensive fiber-to-premise networks operating in competitive markets. 

Investors, on the other hand, have come to view digital infrastructure as they historically have viewed other real estate assets including hotels, airports, seaports, power utilities or transportation assets. 

Also, more data center assets are moving to private equity or other institutional investor ownership for similar reasons. They are viewed as stable cash-producing assets with some scarcity value. 

For private equity investors, there typically also is a belief that the operating models can be improved to drive higher revenue and profits. 

One recent example of that trend is the reorganization plan adopted by Oi. 

Brazilian operator Oi, which had entered bankruptcy in 2016, is moving ahead with a slimmed-down operating model roughly analogous to that of a mobile virtual network operator, which leases wholesale capacity and services from a facilities-based service provider. 

To make that shift, and shed debt, Oi has shed its mobile assets, cell towers, data centers, video entertainment operations. It also is structurally separating its fixed network infrastructure operations from its retail fixed network operations, but will retain a minority stake in the infrastructure assets supplier. 

Oi’s mobile assets were sold to TIM (Telecom Italia) as well as Brazilian mobile operators Vivo and Claro Americas. The mobile cell tower assets were sold to Highline, a unit of DigitalBridge, which invests in digital  infrastructure. 

source: Oi 

The data center assets were sold to Brazil-based private equity firm Piemonte Holding. The video subscription assets were offloaded to Sky Brasil. 

A controlling stake in its fiber infrastructure business V.tal was sold to a group of investors headed by Globenet Cabos Submarinos and BTG.

After the structural separation of the fixed network business, Oi will continue to hole a minority stake in the infrastructure wholesale business, and operate its retail business--anchored by internet access--as a retail customer of the infrastructure business.

It is akin to the model used in the United Kingdom, Australia, New Zealand and Singapore, for example. 

The moves also illustrate the shift of ownership of digital infrastructure assets from service providers to private equity and other institutional investors that began decades ago with decisions by mobile operators to offload ownership of cell towers. 

Since then, a wider range of assets have begun to shift, including local access networks and data centers. 

In essence, a wider range of physical infrastructure assets are considered for disposal, to enable a lighter-asset business model that has been proposed by many observers for more than a decade.