Vodafone and Spain’s Telefónica, which operates the O2 mobile service in the UK, will share their cell towers, masts, radio equipment and local transmission kit in a 50/50 joint venture aimed at improving user coverage and accelerating the development of new fourth-generation (4G) mobile services. The agreement could reduce the companies’ UK mobile network costs by 25 per cent, producing combined savings of more than £1bn by 2015, said Emeka Obiodu, a telecoms analyst at Ovum.
“There is the obvious possibility for this arrangement to be extended into other important European markets in which Vodafone and Telefónica compete – Germany and Spain for example,” said analysts at Espirito Santo. “The agreement has the potential to significantly improve network quality, speed to market with 4G, lead to much better cash generation, and enhance returns on capital in the UK market for both companies.”
The new joint venture between Telefónica (O2 in the UK) and Vodafone – which will not affect the way they compete for customers – is an extension of a collaboration agreed in 2009, which did not cover all sites or radio and local transmission equipment.
The companies said the deal will create one grid of 18,500 cellular sites, allow indoor coverage of 98 per cent of the UK population with second and third-generation wireless technologies by 2015, and 98 per cent population coverage with fourth-generation technology by 2017.
“Our motivation is the fact we have 4G coming round the corner,” said Guy Laurence, chief executive officer of Vodafone UK. “It was a natural point for us to do this because we have to replace equipment anyway. It makes sense to do so at this inflection point.”
This sharing of cellular network infrastructure could serve as a blueprint for similar deals across Europe, as wireless telcos search for ways to reduce cost and add capacity. Europe’s largest mobile phone companies are examining fresh ways to trim costs in a market beset by rising investment demands, increased regulatory pressure and weaker consumer spending.
AJW Comment: This sharing of cellular infrastructure has been talked about for a long time and is now finally happening in the UK and some places in Europe (see below). But it doesn’t appear likely in the U.S.- at least not with the 4 leading mobile operators- VZW, AT&T, Sprint or T-Mobile. Why not?
NY TImes reports:
“The costs of building LTE networks in saturated European markets has also prompted Telenor, a Norwegian operator, and Tele2, a Swedish operator, to merge their networks in Sweden. In Germany, both O2, the nation’s No. 3 mobile operator, and E-Plus, the No. 4 owned by KPN of the Netherlands, are examining venture options for their businesses.
“As network quality perceptions are becoming more about how fast and reliable networks are in any location rather than who has the best coverage, there is less and less logic in every operator in a market having their own entirely independent network infrastructure,” said Philip Kendall, an analyst at Strategy Analytics in Milton Keynes, England.
Mr. Dunne, the O2 chief executive, said the operators would investigate ways to cut up to 10 percent of their combined cellphone masts. In a note to clients, Sanford C. Bernstein & Company, a New York investment fund manager, said the network venture could generate up to 1.5 billion euros, or $1.9 billion, in savings for each operator. The network venture aims to help O2 and Vodafone keep pace with Everything Everywhere, which was created in 2010 and displaced O2 as Britain’s No. 1 operator.”