Report: Vodafone and Telefónica face scrutiny over network-sharing deal

Vodafone and Telefónica will submit their plans to pool their UK network infrastructure to the Office of Fair Trading next week, but analysts warn that the deal could be subject to close scrutiny by regulators.

According to a report in the Financial Times, the two operators face the tough task of convincing regulators that combining their assets would not amount to a merger. With Everything Everywhere – the network company owned by France Telecom's Orange UK and Deutsche Telekom's T-Mobile UK--already sharing masts with 3 UK, regulators are concerned about the risk of a reduced level of differentiation in network quality.

The FT said Vodafone and Telefónica say the deal would give improved coverage of the UK as well as the potential for greater competition at the retail and services level. The paper also cited analysts at Sanford Bernstein as saying that the two companies could save between €1.2 billion and €1.5 billion each by combining their 18,500 mast sites.

Regulatory sensors were particularly alerted by the plan to create a joint venture company, Cornerstone Telecommunications Infrastructure (CTI), to own and manage Vodafone and O2 UK masts across the country and solidify the existing partnership into a legal company structure. According to the FT, it would include a property transaction that could qualify as a reviewable merger under the Enterprise Act.

UK telecoms regulator Ofcom is, naturally, also involved: as quoted by the FT, Ofcom said: "Given our duties as a sectoral competition authority, Ofcom is engaged in constructive discussions with both Telefónica (O2) UK and Vodafone UK in relation to their proposed joint venture and network sharing arrangement. Ofcom is also assisting the OFT in relation to its consideration of the arrangements."

For more:
- see this FT article (sub. req.)

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