Neutral hosts: A route to greater 5G profitability for CSPs?
The company that owns the most cell towers in the United States isn’t Verizon or AT&T, or any other mobile network operator. It’s American Tower, a firm that’s built its business on buying real estate, erecting cell towers on it, and renting space on those towers to mobile operators. Today, American Tower owns more than 220,000 communications sites globally, and it’s got big plans for the future.
American Tower was one of the first movers in a market that began in the 1990s, but which is now gaining momentum as demand for ubiquitous, high-speed connectivity takes off. As one of a growing number of neutral hosts, it leases the undifferentiated (or ‘passive’) elements of mobile network infrastructure to CSPs, enabling them to reduce their own capital expenditure on infrastructure.
By replacing hefty capex outlays with manageable opex payments, neutral hosts allow CSPs to invest more capital into the parts of their business that differentiate them in the market. For their part, neutral hosts recoup their costs – often handsomely – by hosting multiple operators on the same infrastructure.
New models for 5G neutral hosts
It’s a win-win model, and it’s proved so effective that neutral hosts are now expanding beyond passive elements into active areas of network infrastructure. The natural progression for tower companies has been into the radio access network (RAN), kitting out cell towers with open-access antennas and installing small cells and distributed antenna systems (DAS) for in-building coverage.
Elsewhere, fiber-based neutral hosts like SiFi Networks are eyeing the growing demand for midhaul and backhaul capacity for 5G networks. They’ve already invested in last-mile fiber connections to urban homes and businesses, and CSPs can bag some of that capacity for their cell sites rather than laying their own fiber.
“It makes no sense to dig four or five networks for different services,” says SiFi Networks CEO Ben Bawtree-Jobson. “We only have to dig once, and deliver everything across that one infrastructure.”
Data centers are a third area of growth, addressing demand for low-latency data processing driven by cloud gaming and other consumer or enterprise real-time services. The shelters at the base of each cell tower are ideal locations for edge data centers, and as tower companies will likely run virtualized RANs there, it makes sense to open the spare compute capacity up to CSPs – and other players, such as equipment vendors or enterprises – on an infrastructure-as-a-service basis.
What is a neutral host?
A neutral host is a company that invests in telecommunications infrastructure such as cell towers, real estate and fiber-optic networks, and leases this infrastructure to multiple service providers (CSPs) on a shared-tenant basis.
CSPs benefit from reduced capital costs and more working capital to devote to other aspects of the business, such as accelerating rollouts of new services and improving network coverage, as well as the opportunity to spread infrastructure costs over multiple years. Another benefit includes not having to deal with real-estate purchases and permissions.
Using neutral host infrastructure can be a low-cost way for CSPs to enter new markets and geographical areas and can also create a new revenue stream for CSPs prepared to share their infrastructure with other operators.
Key factors driving the uptake of neutral host infrastructure
Of course, not every CSP wants to relinquish infrastructure it’s spent years architecting, building and evolving. But using a neutral host makes sense for many – at least in certain parts of the business.
One driver is rising demand for rural coverage, whether mandated by regulators or driven by shifting residential patterns. Using a neutral host is a cost-effective way to extend 5G coverage into rural areas: In Ireland, for example, European tower company Cellnex Telecom invites CSPs to register spots that their own infrastructure doesn’t reach, so it can consider them in its rollout strategy.
The need for high-density coverage in urban and other high-traffic locations is another driver. Masts and towers alone can’t fulfil this need, especially as 5G makes on-the-go gaming and video streaming more popular. One lower-cost solution for CSPs is to take advantage of the open-access small cells and distributed antenna systems that neutral hosts are installing in buildings across urban areas.
Those in-building systems could also provide ready-made platforms for private wireless networks; another potential growth area for CSPs. “Look at stadiums,” says Jose Antonio Aranda, Global Product Strategy and Innovation Director at Cellnex. “Today, CSPs provide coverage to the crowd for just a few hours every fortnight. If a neutral host provided infrastructure across the stadium for all the CSPs to share, it would cost much less.”
Some CSPs are adopting neutral host business models
Neutral host is such an attractive model that some CSPs are getting in on the game themselves. American Tower and others frequently buy masts that CSPs are looking to offload, and offer that once-proprietary infrastructure to other operators on a multi-tenant model. Now, CSPs like Orange, Vodafone and Oi Brazil are setting up their own neutral host arms, opening up their infrastructure to rivals to generate additional revenue.
“We have a lot of infrastructure assets on the ground, and by allowing this neutral network to serve all of the operators in Brazil, we will maximize our return on those assets,” explains Oi Brazil CEO Rodrigo Abreu. “And [it means] we are able to refocus Oi on being a customer-centric company – free of the weight of having to manage the infrastructure and focusing instead on delivering customer value.”
Future 5G neutral host opportunities to consider
If today’s opportunities are attractive, the future looks even more so. Neutral hosts are some of the keenest observers of the horizon, as their model involves making weighty capital investments today in infrastructure that must pay off in the future. The companies we spoke to highlighted a number of emerging areas where neutral host could help CSPs to monetize their 5G networks faster and better.
One of these is smart cities, which will require ubiquitous, uninterrupted, ultra-low-latency network coverage across urban areas. That’s going to require dense networks of cells and edge data centers with high-bandwidth midhaul and backhaul. By partnering with neutral hosts for the infrastructure, CSPs will have more resources to focus on designing and delivering value-added services.
SiFi’s Bawtree-Jobson offers the example of emergency response. “Three or four years ago, it wasn't viable to have a citywide 4G- or 5G- or WiFi-supported 911 first responder system for drones,” he says. “Now you can bring down the cost of connectivity to such a point that you can have drones be the first responders and beam their signal straight into the emergency response vehicles.”
Autonomous vehicles are another use case. Unlike smart city services, which will be concentrated in a specific area, autonomous trucks and delivery drones will need ubiquitous and reliable network coverage across long distances, including rural areas. There are opportunities here for CSPs to form ecosystem partnerships with neutral hosts, autonomous vehicle manufacturers and software companies to provide nationwide high-speed connectivity and services for autonomous transportation.
Meanwhile, in the domain of private networks, highly automated factories will need 5G networks that can effortlessly handle vast amounts of data, as well as edge computing to process data locally.
American Tower’s Paul Choiseul cites the example of a 5G Open RAN (O-RAN) proof of concept that his company has worked on in Germany. It required a ground-breaking approach to use cases like robotics, which rely on ultra-low latency data transmission and edge computing. “These use cases go beyond the standard edge-computing capabilities of the virtualized O-RAN elements, since a good portion of the data generated needs to be processed locally in real time,” he says.
Using neutral host infrastructure, CSPs can forgo the expense of building and operating the small cells and data centers required, and focus instead on developing or aggregating specialist smart factory services. “The use cases being developed right now seemed like distant roadmap views just a few years ago,” says Choiseul. “Now, 5G is starting to turn bleeding-edge use cases like C-V2X [Cellular Vehicle-to-everything] into reality, and we’re ready to help MNOs seize those new opportunities.”
Optimum time to explore neutral host business models and partnerships
With the future of 5G rapidly becoming today’s reality, CSPs have a raft of strategic decisions to make – from which use cases to focus on to which ecosystems to join.
Not every CSP will see neutral host as part of its strategy for 5G and beyond. But for many, it can be a financially and operationally effective way to embrace the new opportunities that 5G is starting to bring. And with neutral hosts constantly scouting the horizon and building proofs of concept for tomorrow’s use cases, forging those partnerships today could be a very smart step towards maximizing 5G profitability.