How Neutral hosts are reinventing the infrastructure game

Neutral hosts provide the chance for shared infrastructure and improved network sustainability. Yet it’s still early days, and plenty of commercial opportunities in the ‘active’ domain remain untapped. In the first of a three-part series, discover what this win-win model means for the exponential potential of networks.

Hundreds of Beyonce fans hoping to see Queen Bey perform some of her biggest hits in Edinburgh, Scotland, recently encountered a huge connectivity problem as they tried to gain entry. A lack of mobile signal for an hour reportedly rendered the Ticketmaster app, which stored the tickets, defective. 

Connectivity in certain places, such as stadiums, rural areas, and public transportation, has always been challenging. However, technology isn’t usually the problem. The issue is making it feasible from a business standpoint, as the business case for individual operators to bring connectivity into many of these locations doesn’t justify the upfront investment.

One innovative solution to address this issue is infrastructure sharing. Neutral hosts – often tipped as a win-win business model – can potentially reinvent the infrastructure game.

The neutral host model relates to infrastructure companies renting their assets to multiple tenants, which range from enterprises to webscalers to communication service providers (CSPs). By accommodating multiple tenants on a single foundation, network build costs can be recovered, and tenants can be generously rewarded by freeing resources to focus on their core businesses and providing the best services to their customers.

KKR, a leading global investment firm, has been investing in infrastructure since 2008. Florian Christ, a Managing Director at the firm, says: “The neutral host model is established globally and shows no sign of slowing down.”

He explains that this is becoming a very attractive opportunity due to the increasing scarcity of capital, the growing demand for data, and the need to upgrade legacy networks. On top of this, fiber is viewed as a future-proof solution for ultrafast residential broadband access, while 5G networks are also driving data growth. Both can benefit from shared infrastructures in terms of deployment acceleration, reduced cost, and minimized environmental impact.

By offsetting the high costs of building dedicated networks, the CSPs currently stand to benefit the most from this thriving market. For example, neutral hosts can provide indoor connectivity for many specific buildings and venues, like the one Beyonce played at, with one infrastructure that all CSPs can use. Outdoor connectivity issues – such as deployments in rural areas – can be tackled in the same way. 

“Shared infrastructure lowers the cost of deployment and brings the cost of connectivity down,” says Phil Kelley, EVP at Crown Castle International. 
Crown Castle has been building and overseeing shared communication infrastructures for over 25 years, offering wireless coverage, smart city solutions, and personalized fiber optic networks. 

“Verizon, T-Mobile, and AT&T are huge companies in the US, with plenty of capital, but they understand it’s faster and cheaper to share infrastructure with us than to build it themselves,” he says.

The neutral host model also allows CSPs to shift their capital expenditure to operating expenditure, thus increasing their financial flexibility to improve their services while expanding their reach into new markets and geographical areas.

Furthermore, CSPs can improve their balance sheets and overall financial performance by profiting from their infrastructure investments without compromising their added value to consumers and enterprise customers. Companies like Orange, Vodafone, and Oi Brazil have even set up their own neutral host arms, allowing competitors to utilize their infrastructure and generate extra revenue.

In addition to the financial benefits, improved environmental impact is another reason the neutral host model thrives. 

“Everyone is trying to figure out how to get to net zero or reduce [environmental] footprint because that’s a shareholder requirement and the right thing to do,” says Hilary Mine, VP of Strategy and Technology at Nokia. “To do that, running one network rather than three makes sense.”

For Michel Chbat, Head of Global Strategy Execution for Customer Experience at Nokia, the neutral host model plays a vital role in addressing the environmental impact of network densification in urban areas, as discussed in a recent interview for Telco Titans. 

“This is due to the need for more radios as data continues to grow, and newer radio technologies require denser networks operating at higher frequencies,” he says. 

“As cities strive to meet their environmental commitments, they face the challenge of network densification. The neutral host model could offer a simple solution that benefits everyone involved.”

It’s still early days, though, for the neutral host market, and to date, most infrastructure companies have tended to provide opportunities for organizations to share ‘passive’ infrastructure assets and reap rewards. But, this impressive model and the need for continued growth create new opportunities for ‘active’ infrastructure sharing. 

Neutral hosts now offer more than just infrastructure access, expanding their services to provide additional benefits to tenants. So, while they usually begin with leasing space for equipment, the business journey often expands through leasing specific technologies for set purposes to providing a complete, comprehensive infrastructure package.

Some infrastructure companies start by providing co-location services (e.g., space and power) and then gradually move toward offering full active services for particular environments, such as stadiums, office buildings, or airports. So, for example, a tower company with the right business ambition has the potential to drastically improve indoor connectivity in a high-rise building or transform the concert experience for millions of Beyonce fans. 

Many infrastructure companies focus on the growing demand for midhaul and backhaul fiber capacity for 5G networks, as well as for other optical transport and access applications, and are investing in fiber connections to homes and businesses.

As Ben Bawtree-Jobson, CEO of SiFi Networks, explains, in delivering open-access fiber-optic networks, his company can provide a completely neutral platform “to allow for smart city applications, government services, and healthcare services to all flow across the same common infrastructure.”

Data centers are also experiencing growth due to the need for low-latency data processing driven by digitalization, cloud gaming, financial transactions, AI-driven applications, and other real-time services. This creates various opportunities for more active engagement.

For example, Jim Poole, VP of Business Development at Equinix, is eager to discuss the benefits of offering Bare Metal as-a-service (BMaaS). This means customers can deploy a dedicated physical infrastructure in the data center with agility advantages similar to a cloud service.

He explains, “[With BMaaS], all the networking equipment and bare metal components of your private infrastructure can be provisioned virtually. Enterprises don’t have to step foot in the data center.” 

He sees these kinds of virtualized services as the future. “The digital services component of what we do is integral to continuing to grow the value of our data center core business.” 

The telecom industry is evolving, creating opportunities for neutral hosts to revolutionize digital infrastructure. But there are challenges ahead. Interest rates are increasing, and the macroeconomic environment may slow down the market. 

However, a market slowdown wouldn’t be all bad news for the neutral host industry, as overbuilding has become an issue in some geographies. According to a May 2023 survey by the German Association of Local Public Utilities (VKU), approximately 62% of municipal telecom providers reported being threatened by rivals overbuilding their fiber networks or having already experienced an overbuild.

Tenants sit at the heart of the neutral host business – its success relies on securing them. Yet only a limited number of critical tenants are often available – typically from one to three. And then there’s the challenge of the financial arrangements. As Osvaldo DiCampli, Nokia’s President for Latin America and Neutral Host program executive lead, tells us. 

“The neutral host will need to determine the price for the anchor tenant and the other service providers – how much do I charge the first, how much do I charge the second, the third – there’s no regulation or history yet, which could create friction.” This will become even more challenging as neutral host providers move up the value chain, entering more active spaces in the market.

And, of course, a neutral host model isn’t for everyone. Some service providers consider that their infrastructure brings a unique value to a competitive market and are reluctant to adopt it. “I think, naturally, it's a challenge for a telco operator to open its network up to others and use networks built by others,” says Florian Christ of KKR, “It’s truly a strategic shift for most operators. But it has provided great value for them and is a trend which continues.” 

Phil Kelley of Crown Castle puts another spin on it: “Having a better network, whether from a coverage, capacity, or speed standpoint, is one of the things they [CSPs] compete on. If you ask some of the carriers themselves, they will say, we think our network is our differentiator.”

Although there are obstacles to overcome, the neutral host market looks as if it’s here to stay. Our internal estimates suggest that this market could grow to be worth 10% of the CSP total addressable market by 2025. 

With another pop icon, Taylor Swift, set to follow in the footsteps of Queen Bey with three gigs at Murrayfield in Edinburgh next year, fans want to avoid repeating this summer’s connectivity problems. 

This is wholly possible. The technology is there. The demand is there. The neutral host model is set to ready flex with the help of an extensive ecosystem of partners, all working to deliver the next generations of networks.   

Osvaldo DiCampli puts it quite simply, “The dynamics in the market are truly changing, and it's changing from the business point of view. This is not a technology race. This is a financial and business model-driven discussion, and the neutral host model is disrupting the telecom space.”