Telefonica and Vodafone jointly build superfast 4G network in the UK

7 Jun 2012

In a sign of things to come for the mobile industry in Ireland, Vodafone and Telefonica have revealed plans to combine their mobile phone networks in the UK and jointly build a superfast 4G network. The network-sharing deal will reduce the cost of managing their mobile networks by 25pc for both companies.

The logic behind the decision is simply economies of scale in that it is the only way a nationwide 4G network could be built other than doing it independently.

The agreement lays the foundations for two competing 4G networks running off the same infrastructure.

Both companies said today they pledge to close the digital divide between urban and rural areas and are targeting 98pc indoor population coverage across 2G and 3G by 2015.

The pooled network will consist of 18,500 sites across the UK.

Telefonica’s CTO Ronan Dunne explained: “Exceptional customer demand for the mobile internet has challenged the mobile industry to consider innovative solutions to building a nationwide network that will be fit for our customers in the future and support the products and services that will truly make Britain digital.

“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 and to as many people as possible.

“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,” Dunne said.

Partnership will shave 25pc off both Telefonica and Vodafone’s network costs

Emeka Obiodu, senior telecoms strategy analyst at Ovum, believes both parties can expect to save about 25pc of their network costs.

“The beauty of the deal is that both Vodafone and Telefonica can look forward to saving at least 25pc of their network costs. Considering that Vodafone UK spent stg£575m in capex in the year ended 31 March 2012, this could lead to savings of more than stg£100m a year. Over the three years from now until 2015 when both parties expect to achieve 98pc indoor population coverage across 2G and 3G, the combined potential savings would be in excess of stg£600m.

“By the time both parties roll out LTE, the potential savings would even be higher. The CEOs told us that the network-sharing deal at the 2G and 3G level, especially with the installation of single RANs, is laying a solid foundation for further sharing on LTE. If we then assume that it could cost up to stg£1bn for each operator to roll out LTE in the UK, combined potential savings for both Vodafone and Telefonica from this deal would be worth in excess of stg£1bn by the time they hope to have a 98pc LTE coverage in 2015.”

Elsewhere, Obiodu, expects that, ultimately, at least 50pc of all LTE rollouts will use shared networks.

“While there is no certainty yet about how LTE spectrum will be divvied up in the UK, this deal lays the groundwork for both parties to build out a single LTE network in the country. That means that effectively, the UK is set to become a country with only two physical LTE networks from the Vodafone-Telefonica group and the Orange-T-Mobile-3 group.

“Indeed, we are not surprised at this. Since 2009, Ovum has warned that the financial realities facing mobile telcos means they have no choice but to share their networks. We posited that most countries will end up with not more than two networks. Going forward, we also expect that at least 50pc of all LTE network rollouts in the world in the next five years will involve some form of active network sharing,” Obiodu said.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years