Telecom structural separation

Today structural separation is an investor-led initiative that is influenced by high debt and poor operator performance.

Over the last ten years the telecom market has experienced an increase in CapEx while EBIDTA margins have remained stagnant. Factors contributing to this include declining legacy revenues, a changing competitor landscape with new entrants such as OTT players utilizing innovative business models, regulatory pressure, and inability in operators capturing new revenue due to fully verticalized, integrated business models. Subsequently, investors are driving agendas with a view of increasing profit margins by either selling off or separating parts of the business which are CapEx intensive. As the market progresses we expect: i) a continuation in regulator driven structural separation across European countries in an attempt to create a fair competitive playing field and ii) joint initiatives between mobile operators in infrastructure sharing to reduce cost, improve quality of service, and gain a wider footprint.
The majority of structural separation occurs at the passive and active infrastructure layer, to reduce CapEx and opex.
The backbone passive and active infrastructure layers are generally capital intensive. Operators through investor-led initiatives are separating these portions of the network under a NetCo model. However, the lines of separation vary in practice, and in some cases operators have separated the management of the network, operations and wholesale under a NetCo, and the digital retail function under a OpCo unit.
Operators should include structural separation as part of their transformation in becoming digitized in the future.
Operators should take a proactive approach on investor-led structural separation initiatives and work with investors to consider the merits of alternative strategic options.