And then there were two‾

Vodafone and O2 plan to pool their networks in what the Guardian calls biggest shake-up of the UK's mobile phone industry since the introduction of mobile broadband services.

Orange, which had an infrastructure agreement in place with Vodafone, now wants to join T-Mobile and 3 for permission to join their MBNL infrastracture sharing joint venture. So the UK industry splits into its old camps - with the two original licensees, Vodafone and what was then BT Cellnet (O2) closing ranks against the newer, smaller entrants.

The plan is to cut costs, improve coverage in rural areas and drastically reduce the number of base stations deployed, which Terry Flanagan, MD of the logistics, lifting and associated management services company Commhoist, estimate at 70,000. He predicts, "In the UK, some 30,000 sites will be decommissioned over the next three to five years, while the remaining 40,000 base stations will have to be replaced by smaller, more power efficient units that provide high density coverage."

The UK's Competition Commission and Office of Fair Trading are expected to scrutinise the arrangements to see whether they will reduce competition. It's hard to see why as the five will continue to compete against each other under their own brands.

At the moment mobile broadband services only covers just over 80% of the UK population. In parts of Wales and Scotland, there is no mobile phone coverage at all. Communications Minister Lord Stephen Carter has called for Vodafone and O2 to recycle some of the radio spectrum they were awarded the 1980s to be used for mobile broadband.

In the course of negotiations on this thorny issue with Carter's representative, Kip Meek, it has become obvious to Vodafone that it picked the wrong partner when it signed up with Orange last year. The two companies operate at different levels of the radio spectrum and the scope of their partnership has been slowly reducing so they now merely share sites.

Talks between Vodafone and O2 are understood to be at an advanced stage with an announcement due in the next few weeks. While Vodafone will make clear in that statement that it still has a deal with Orange, which is owned by France Télécom, it hopes to link up with T-Mobile and 3, for whom it already provides 2G mobile coverage. It has not yet made a formal representation to the companies, although talks have taken place, and both T-Mobile and 3 are understood to be keen to engage in negotiations.

Although the network sharing deals fall far short of a full-scale merger, many in the industry believe that the UK has at least one too many networks. For all five mobile phone companies, the UK is their least profitable European region, and for T-Mobile it is a loss-maker.

A spokesman for Orange pointed out that the company still has an agreement with Vodafone to share sites in the UK but added 'the report "&brkbar; has thrown up a number of questions, opportunities and avenues that we are exploring which could see us open up additional bilateral or multilateral partnerships with other operators in the future.'

A spokesman for O2 said it was 'exploring' network sharing arrangements. Vodafone added: 'We regularly review our plans to ensure Vodafone UK is best placed to take advantage of network sharing schemes now and in the future. We will provide any updates as appropriate.'

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