Analysts estimate that the combined savings Telefónica and Vodafone could make from increasing their network sharing agreement in the UK may reach in excess of €1 billion by 2015.

The two operators have announced that they want to jointly operate and manage a single network grid in the UK that will run two competing mobile internet and voice networks.

They are currently engaged in discussions with regulator Ofcom about establishing a joint venture that would allow the network sharing arrangement to be rolled out later this year.

Both declined to detail what savings the deal would potentially provide.

However, Ovum’s Emeka Obiodu estimated that network cost savings of at least 25 percent could be expected.

“Considering that Vodafone UK spent €710 million in capex in the year ended March 31 2012, this could lead to savings of over €125 million a year,” said Obiodu.

“If we then assume that it could cost up to €1.25 billion for each operator to roll out LTE in the UK, combined potential savings for both Vodafone and Telefónica from this deal would be worth in excess of €1 billion by 2015.”

The JV, which would build on the two companies’ existing Cornerstone arrangement launched back in 2009, will be created through the consolidation of existing basic network infrastructure, including towers and masts.

As a result, both companies will have access to a single grid of 18,500 masts representing an increase in sites of more than 40 percent for each operator.

Each company will retain control over their wireless spectrum, intelligent core networks and customer data, while competing with on all products and services, the two operators said in a statement. 

“We have learned a lot from our existing network collaboration but now it is time for it to evolve,” said Vodafone UK CEO Guy Laurence.

“This partnership 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.”

Telefónica UK CEO Ronan Dunne added: “One physical grid, running independent networks, will mean greater efficiency, fewer site builds, broader coverage and, crucially, investment in innovation and better competition for the customer.”

The responsibility for design, management and maintenance of the radio equipment as well as local transmission will, “over time”, be split geographically between the two companies.

Telefónica will look after the East, including Northern Ireland and most of Scotland, while Vodafone will look after the West, including Wales.

Analysys Mason’s Philip Bates said the two operators faced three key challenges to ensuring it is a success:

“First, assigning a fair value to the assets that each party contributes; second, where both operators have sites that are close to each other and only one is needed, deciding which site to keep and how the costs of relocation and decommissioning should be shared;

"And third, figuring out how to implement further cost saving such as backhaul sharing – particularly relevant now that Vodafone is planning to buy C&WW’s UK fibre network,” he said.

The partnership is also designed to “lay the foundations” for two competing 4G networks and services.

“The UK is set to become a country with only two physical LTE networks from Vodafone-Telefónica and Everything Everywhere-Three,” confirmed Obiodu.

The UK’s 4G auction is not expected until later this year, but Telefónica and Vodafone said the JV would enable next gen networks and services to be delivered before the anticipated regulatory requirement of 98 percent population coverage by 2017.

“This partnership is about working smarter as an industry, so that we can focus on what really matters to our customers – delivering a superfast network up to two years faster than Ofcom envisages,” said Dunne.

Obiodu believes this model could serve as a template for others to follow.

“Going forward, we expect that at least half of all LTE network rollouts in the world in the next five years will involve some form of active network sharing,” he said.

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This document was created using a Contractology template available at http://www.freenetlaw.com.

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