Evolution of neutral hosts
Since the early 2000s, telcos have responded to these pressures through a number of measures, including:
- forming infrastructure joint ventures (JVs) to share costs and reduce duplication
- undergoing structural separation of their traditional, vertically integrated telecoms business into ServiceCo (for telco service provision) and InfraCo (for infrastructure ownership and management) entities
- divesting passive infrastructure (or InfraCo entity) to third parties to operate as a neutral host.
Globally, the industry has seen a steady expansion of multilateral network sharing arrangements and the growth of the role of independent neutral host providers—a trend increasingly led by private capital investment.
Neutral hosts own and operate network infrastructure and lease access to multiple operators, aggregating demand and delivering capex-intensive infrastructure “as a service” at a lower operating expense per tenant, alongside other efficiencies in network planning and rollout. This model targets higher asset utilization and improved financial viability through increased tenancy ratios and cost efficiencies.
Over the last decade, neutral hosts have expanded beyond passive mobile tower infrastructure to fiber and radio access networks, small-cells and in-building coverage, data centers, and satellite ground stations. Government-led projects have also created neutral host models, such as the Australian National Broadband Network and the six‑way mobile operator active network sharing in Malaysia.
A fundamental shift: market, competition, and innovation
The separation of telecoms infrastructure from service provision is fundamentally reshaping the global telecoms market. For telcos, divesting infrastructure allows a sharper focus on core offerings—innovation, customer experience, and new digital services, such as network slicing use cases and AI-driven solutions. The move towards a more virtualized, software-defined, and autonomous network environment is enabling operators to differentiate on service and innovation, rather than infrastructure coverage and capacity.
For neutral hosts, the opportunity is to create an investable, resilient, and financially viable infrastructure business supporting telecoms operators and potentially other enterprise and government customers. Business plans are typically long term and primarily target increased tenancy ratios and infrastructure coverage, but also look towards service scope expansion, for instance, active network services, edge‑computing, and in-building coverage solutions.
Legal and commercial complexity: navigating the new landscape
The separation of telecoms infrastructure from service provision raises numerous legal and commercial challenges for telco operators and neutral host providers. For telco operators, this includes the following:
Loss of control
The loss of operational control over network assets results in telcos having less control over determining the service level agreements (SLAs) offered to end customers.This reliance may hinder telcos in meeting the evolving demands for bespoke SLAs, particularly in industrial automation use cases, potentially giving advantages to telcos that retain control over relevant network assets.
Economic control and margin pressure
Telco service pricing and margins will be dependent on the wholesale pricing negotiated with the neutral host. Telco operators will require contractual mechanisms to manage future pricing, including to ensure that telcos can maintain competitive market pricing.
Allocation of regulatory responsibilities
With network responsibilities split between telcos and neutral hosts, careful contractual allocation of regulatory compliance is critical. Telcos will need to ensure that their contracts with neutral hosts will facilitate compliance with obligations under applicable telecoms, data protection, security, and critical infrastructure legislation.
Neutral hosts (or their investors) will face challenges in acquiring telecoms infrastructure from telco operators and/or expanding their service scope into active network services. These include the following:
Sale and lease-back agreement
InfraCo carve-out and lease back transactions are highly complex and must balance the neutral host’s need for operational independence, economic viability, and neutrality with the selling telco’s interests in preserving “anchor tenant” control over its former network assets, service assurance, and pricing certainty.
Where the selling telco retains a minority stake in an InfraCo, shareholder and board constraints may also arise, limiting strategic flexibility to pursue third-party revenue opportunities or complementary partnerships and acquisitions.
Network sufficiency and transitional arrangements
Neutral hosts must ensure that they have full operational capability from day one of infrastructure ownership, whether through in-house capability, capabilities transferred from the selling telco, transitional service agreements (TSAs), or ongoing service contracts with the selling telco or other partners.
Deep operational reliance on the selling carrier may create problems for a neutral host business, including by damaging market perception of its “neutrality” and adding complexity to agreement of commercial risk positions with customers.
Heightened commercial risk and complexity
Neutral hosts that take on active network services will face complex relationships with equipment vendors, software providers, and multiple tenants. This includes negotiating new licensing models, ensuring data protection and confidentiality, aligning vendor and customer SLA commitments, and pursuing eco-system partnerships to cater for a new generation of telecoms-enabled use cases.
Regulatory uncertainty
Telecoms legislation has not fully caught up with the neutral host model. In many jurisdictions, neutral hosts may be regulated as carriers and/or critical infrastructure providers, with significant implications for ownership, asset management, and compliance.
Conclusion
The evolution of the neutral host service model represents a significant disruption to the traditional telco value chain, fundamentally altering how network assets are owned, managed, and monetized.
This shift creates new opportunities for efficiency and innovation but also introduces complex operational and commercial dynamics that must be carefully navigated by telcos and neutral host providers to unlock the full value of these new models. Further opportunity and complexity lie ahead as 5G and 6G use cases, like industrial automation, place greater demands on telcos and their—or their neutral host’s—networks.
The A&O Shearman technology practice offers dedicated support for telecoms and neutral host transactions across the APAC region, with deep experience working with telco operators and neutral host providers.
