Vodafone, O2 UK may save £1B though network sharing JV

Vodafone and Telefónica's O2 UK said they will significantly expand their networking sharing joint venture to expand LTE access, in a move that could lead to joint capital expenditure savings of over £1 billion, according to Ovum.

The new agreement, which aims to provide 98 per cent of the UK's population with in-building 2G/3G coverage by 2015, will see the two operators merger their core networks and have joint access to 18,500 combined antenna sites--representing an increase in sites of more than 40 per cent for each operator. Of note, the new network will undergo an upgrade programme to a single RAN, leading to the potential sharing of LTE services.

These moves will see Vodafone and O2 UK saving at least 25 per cent of their network costs, according to Emeke Obiodu, a telecoms strategy analyst with Ovum.

"Considering that Vodafone UK spent £575 million in capital expenditures in the year ended March 31 2012, this could lead to savings of over £100 million per year," Obiodu said. "Over the three years from now until 2015, when both parties expect to achieve 98 per cent in-building population coverage across 2G and 3G, the combined potential savings would be in excess of £600 million."

But the potential for saving when LTE is deployed could be huge, according to Ovum.

"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," Obiodu said. "If we then assume that it could cost up to £1 billion for each operator to roll out LTE in the UK, combined potential savings for both Vodafone and O2 UK from this deal would be worth in excess of £1 billion by the time they hope to have a 98 per cent LTE coverage in 2015."

This Ovum viewpoint is supported by Giovanni Montalti, a London-based analyst at Credit Agricole Cheuvreux.

"This agreement will allow companies to achieve material savings in the roll-out of their new LTE network and in the management of their existing 2G and 3G infrastructures," Montalti told Bloomberg. But he cautioned: "Operators need to find additional sources of efficiencies to face growing competition, regulatory pressure and technological threats."

However, during a teleconference the CEOs of the two operators were keen to stress that this network sharing deal (which will build on their existing Cornerstone joint venture formed in 2009) will not affect the way they compete for customers.

While declining to detail any likely cost savings, O2 UK Ronan Dunne CEO told the Financial Times that over 10 per cent of the company's existing infrastructure sites will be decommissioned as part of the pooling of resources, but ruled out any job losses.

Vodafone UK CEO Guy Laurence said that the enhanced JV 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."

Responding to the joint announcement, a spokesman for Everythign Everywhere, the joint venture between Orange UK and T-Mobile UK, said: "It's good to see the other two key players in the UK market being spurred into action following our call to bring LTE to Britain this year. As with any plan of this scale, we would expect Ofcom to carefully review the proposal to ensure long-term fairness and competition across all aspects of the industry."

For more:
- see this Vodafone release
- see this Bloomberg article
- see this Financial Times article (reg. req.)
- see this Reuters article

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