Sharing California & New York City

The idea of network sharing has come to America. An infrastructure joint-venture between Cingular and VoiceStream will allow the carriers to share networks and spectrum in California, Nevada and New York City. Network sharing originated last summer when British Telecom and Deutsche Telekom said they would build communal 3G infrastructure because of the licenses' excessive costs. Swedish carriers also plan to share network infrastructure.

The Cingular/VoiceStream pact traces its roots to last November when the carriers exchanged spectrum covering 35 million POPs in New York City, Nevada, Los Angeles and San Francisco. Under the new agreement, Cingular contributes its network assets in the rest of California and Nevada; VoiceStream adds its New York City assets.

According to Stephen Carter, Cingular president & CEO, the 50/50 infrastructure venture allows the carriers to share GSM resources by combining them into a wholesale entity from which the carriers will purchase network resources. The entity will have access to 40MHz of spectrum in New York City, California and Nevada. The combined networks cover more than 55 million POPs.

“Maybe this is a sign of things to come,” said Aldo Morri, Strategis Group senior consultant. “There will probably be more of this kind of thing, not just in the United States but globally.”

Dave Williams, Cingular vice president of strategic engineering, said the economy had nothing to do with the carriers' cooperation.

“This project's been on the drawing board for a long time,” he said. “Ten megahertz in New York is not enough spectrum for that market, so we had to look at alternatives.”

VoiceStream will continue to operate the New York City network, and Cingular will manage the California and Nevada networks under a service-level agreement. A small management board will oversee the wholesale entity, equally representing each company. The carriers won't exchange licenses but will make the spectrum available to the wholesaler. Each carrier will retain control of its spectrum and continue to market under its individual brand. Because the carriers' licenses aren't changing hands, FCC approval was not required.

Cingular now can break into the metro New York market sooner — mid-2002, according to Carter — than it could have alone. VoiceStream will enter the California and Nevada markets next summer.

Financial terms weren't disclosed, but both carriers agreed that sharing existing infrastructure will save in capital expenditures and operating expenses.

“We estimate that the VoiceStream/Deutsche Telekom company will save over $1 billion in the first three years, and over $1.7 billion over a 9-year period in capital expenditures,” said John Stanton, VoiceStream CEO. “In addition, we will avoid the need to make further spectrum purchases in those markets.”

Before the deal is finalized in 1Q02, each carrier will develop distribution channels and marketing plans.

Neither carrier anticipates capacity problems that could stem from more subscribers using fewer networks.

“We normally build out around busy hours, so we'll just continue to fulfill that,” Williams said.

According to Carter, GAIT handsets will be in place for legacy TDMA subscribers by the time Cingular begins to operate in New York City.

Williams said the agreement won't slow either party's 2.5G and 3G paths because the carriers share the same technology plan.

“One of the easiest things to agree on was that GPRS should be fully loaded into the networks and launched as soon as possible,” Carter said.

Although the carriers risk giving up some competitive position, Morri said, the gamble is worth it.

“Given the spectrum shortages people have and the cost of having a true nationwide network, there's probably more to be gained from some sort of cooperation/competition,” he said.

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Likelihood of European Network Sharing

Analysys predicts two European carriers sharing networks would save up to 38% in capital expenditure and up to 14% in operating expenditure.