One of the concepts that got hot in 2023 despite not being new is that of a “neutral host”, which is another name for a company or entity that invests in telecom infrastructure (usually access infrastructure like towers and fiber) and then hosts multiple service providers over their facilities. In the past, this practice has focused on mobile services, towers in particular. The question we have to address for 2024 is not whether it will spread—it will—but what will happen as it does. And, of course, what won’t happen but will be talked about nevertheless.
The neutral host concept focused on tower-sharing initially, as I’ve noted above, and the reason is the fact that wireless services are necessarily market-wide, not confined to a traditional telco territory like wireline. Why, in a competitive telecom market, don’t we see operators digging trenches in another’s territory? Because competitive overbuild for wireline service is simply too expensive. Even for mobile services it’s costly, and that’s what led to the concept of neutral hosts. Somebody puts up a tower, and provides perhaps some mobile radio facilities and even backhaul, and then leases space to those eager competitors.
Access networking is the most expensive part of networking overall, accounting for well over a third of capex and a bit more of opex. One operator commented, half-jokingly, that if they hadn’t acquired a lot of the facilities and rights while they were regulated monopolies, they could never have afforded them. The ROI on this expensive piece of infrastructure depends on what I’ve always called “demand density”, which is the economic power that a mile of deployed infrastructure can serve. When demand density is high, which is usually when the area is highly developed, there’s a decent ROI. Where it’s low, it’s very difficult to make enough from the service area to pay back on deployment. Reluctance to engage in competitive overbuild is a result of this.
This is also why the concept of the “competitive local exchange carrier” or CLEC was dumb from the first. In the US, CLECs were granted the right to obtain resources from the dominant local exchange carriers at wholesale prices, and that’s all they wanted to do. The CLEC concept, in effect, introduced the notion of a neutral host by creating a host through regulatory fiat. This separated the notion of the “service provider” as the entity that dealt with customers from the “infrastructure provider” that sustained the facilities that hosted the service, too. That gave rise to the whole mobile-virtual-network-operator or MVNO space.
Government fiat also took a stab at dealing with access networks, with Australia’s adventure into its “National Broadband Network” or NBN. Launched in 2007 as an “access neutral host” for fiber to the node, NBN has been troubled from the first and has undergone almost annual changes in policy and technology, but it would be fair to say that today’s neutral host concept is a kind of distributed, ad hoc, privatized version of NBN, with some critical differences.
One difference, of course, is that NBN was a government-owned company initiative, and the neutral network concept is currently largely driven by private companies, the tower companies. However, we’re seeing an increasing number of local governments getting involved in fiber fixed access, and so it’s likely that neutral networks will be increasingly “neutral” with respect to who actually invests in and owns the infrastructure.
Another difference, perhaps more critical, grows out of this first difference. NBN had to address the entire country, which necessitated a mix of satellite, wireless, and wireline/fiber. The neutral network concept would almost surely be localized and would cherry-pick its targets based on economic return. For example, we’re seeing private/muni fiber deployments largely in smaller cities where local demand densities are high enough to return on the investment. There is no particular force in play to standardize on a technology; whatever works best in a given target area is fine. There’s also no real mandate to create any universal standard for access performance, though government regulations tend to move the market in that direction.
The mandates that exist, and are likely to develop, won’t impact localized access providers because their scope of operations is targeted at areas where there’s a fairly uniform potential for profit. There is no centralized governance or even regulation in the neutral network space. Where we are headed in this regard is difficult to say; it’s possible that regulations could emerge. It’s also possible, and I believe more likely, that neutral access networks will evolve as a federation, and at two levels.
One level is at the “retail” level, where the service provider is the one hosted on the neutral host. Since the whole idea of neutral hosting is to avoid your own deployments, fragmentation of the host resources necessitates federating hosts on the part of the retail provider. It would make little economic sense to assume a retail provider would elect to do business with a single host…unless….
…we come to the second level of federation, which is at the host level. If neutral hosts want optimum market power, they would likely want to band together to serve areas outside the scope of each individual host. These federations could then negotiate with retail providers who wanted broad geographic/market coverage. I think host federation is inevitable, if for no other reason because the current telcos and cable companies are likely to become giant neutral hosts in their own right, at least for business services.
I’ve noted in past blogs that the combination of the Internet and the cloud are serving to displace traditional VPN services to branch offices and other secondary locations. It follows that the cloud providers would be increasingly interested in seizing the access portion of secondary sites, and would therefore be happy to offer neutral hosts the opportunity of connecting to these sites and selling access to the cloud providers. This would induce telcos to offer neutral host services to the cloud providers to prevent being disintermediated completely. Business services then separate into retail and infrastructure.
Well, where does that leave us? Mobile services increasingly rely on MVNOs, which makes the actual telco a neutral host. Business services are heading to the point where cloud providers are the retail, and whoever has infrastructure is a neutral host. Wireline consumer services? It’s not difficult to see “home virtual network operators” emerge. Maybe the CDN providers. Maybe networks that create content. Probably all of the above, just as MVNOs today come in different guises.
Operators who’ve provided me input aren’t all that upset about the possibility they could end up being neutral hosts, wholesale providers. The problem is that this role is almost certainly less profitable than their current role, which mixes in some retail operations (even though those aren’t all that profitable either). Thus, operators are probably hunkering down on a neutral host role because it doesn’t demand that they exit connection services to find profits, a prospect that apparently frightens many of them. They should be more frightened by the alternative.
Those who have visibility can market and sell. Those that don’t…well, what they have to do is produce for someone else to sell. Operators would have had a major advantage in the service space had they embraced both sides of this visibility equation, but I think it’s probably too late now to change things. Certainly doing that would take a major effort on the part of either the operators themselves (unlikely) or vendors who hope to do business with them (unlikely until it’s clear that the vendors’ near-term revenues are at risk). As I’ll get to tomorrow, I think it’s most likely that the vendors will instead focus on enterprise sales, and leave the operators to sort out their own situations.
