Big two sharing network to roll out 4G

Europe’s telecom industry is chasing ways to meet the rising cost of keeping pace with technological advances and customer demands, with tie-ups and co-operation deals the order of the day; the arrival of emerging markets billionaire Carlos Slim on the European telecom scene is also ramping up the pressure for consolidation.

Vodafone and O2 said they would form a joint venture in the UK to pool their infrastructure to improve coverage and speed up the roll-out of a fourth-generation network.

A spokeswoman for O2 told the Yorkshire Post: “The big beneficiary of this agreement is the UK and our economy as we are making a significant step in closing the digital divide.”

The company, which is owned by Spain’s Telefonica, has 2,700 employees in Leeds.

Analysts said the pair’s move could be replicated in other European markets such as Spain and Germany, which could have a knock-on effect on other operators struggling with fierce competition, regulatory pressure and weak consumer spending.

This will create two stronger players who will compete with each other and with other operators to bring the benefits of mobile internet services to consumers and businesses across the country,” Vodafone UK chief executive Guy Laurence said, adding that it would give Britain the 4G networks it will need tomorrow.

The agreement will also help O2 and Vodafone, ranked second and third respectively in Britain, to compete with market leader Everything Everywhere, which runs the Orange and T-Mobile brands, in the fight to have the best network.

The smallest operator, 3, has a network-sharing deal with Everything Everywhere.

Vodafone and O2 already have a more basic sharing agreement in Britain, and the deal to pool basic network infrastructure will increase their national coverage to 98 per cent by 2015 and speed up the roll-out of fourth-generation services, they said.

Vodafone estimates that around two-thirds of the population currently have access to third-generation indoor mobile coverage, and the Government has been calling on operators to increase that reach to make the country more efficient to boost the economy.

“Faced with a host of macro-economic and sector threats, the European telecom sector is finally addressing some of the basic business model problems they face and laying the groundwork for a much more profitable recovery,” Bernstein analyst Robin Bienenstock said.

“With further overlap in Ireland, Spain, Germany and the Czech Republic, this could pave the way to more active network sharing across their footprint.

“Vodafone and Telefonica are the only companies that could pursue this strategy in a game-changing way.”

Mr Laurence of Vodafone and O2 UK boss Ronan Dunne said they had singled out the new approach for Britain where consumers have led the way in the move to mobile broadband services.

Analysts said the deal made particular sense for Telefonica, which is under pressure to cut its debt pile and is currently stepping up plans to sell assets.

“Exceptional customer demand for the mobile internet has challenged the mobile industry to consider innovative solutions,” Mr Dunne said. “This partnership is about working smarter as an industry.”

Whether the two groups expand the network sharing approach to other markets such as Spain and Germany will likely hinge on the outcome of a power struggle at Dutch telecom operator KPN, which owns Germany’s third-largest operator E-Plus.

KPN has said it is open to selling E-Plus to ward off a raid by Mexican billionaire Carlos Slim, and analysts say Telefonica is the most likely bidder, since a combination would generate roughly 4 billion euros in synergies.

“To the extent Telefonica may or may not be involved in any outcome of KPN’s strategic review of its German business, the announcement places incremental pressure on KPN to come to the negotiating table,” Mr Bienenstock said.