Vodafone is already sharing sites with operators in several European countries including TIM in Italy, Orange in the UK and Romania. This announcement reaffirms Vodafone's positive inclination towards passive network sharing.
In developed countries, 3G coverage and the impact of mobile broadband adoption, in particular on backhaul, are among the main drivers for the adoption of network sharing. On the 2G front, established operators already provide 99% population coverage, so it makes sense to rationalise costs as much as possible in this domain as coverage is no longer a differentiator.
The Telefonica/Vodafone agreement show the industry is primarily focused on site sharing and passive network sharing, that is simple site sharing for 2G and 3G. Many regulators are encouraging it because of its positive impact on the environment, but also on the potential to roll out 3G in rural areas more quickly. For operators, which sometimes face coverage obligations for 3G, partnerships make a lot of sense from the perspective of total cost of ownership.
Going beyond the sharing of passive network elements (such as sites and masts) is much more challenging and few operators adopt this strategy although potentially it would yield far greater savings than just sharing the radio access network.
As well as the regulatory issues that could prevent the adoption of such approaches (especially for the common shared approach), the implementation of such agreements is far more complex. In addition, from a strategic level, active sharing requires much closer relationships and, in some respect, having a similar network strategy.
Active sharing often ends up with the creation of an independent structure to manage the common network operations. For example, T-Mobile UK and 3 UK created a joint venture called Mobile Broadband Network Limited when they decided to share their radio access networks in the UK as part of their cost-cutting measures.
To illustrate the difference in the adoption of active and passive sharing methods, we can refer to Vodafone's claims a year ago. In March 2008, the mobile operator revealed that 32% of its 73,000 sites in Europe were shared passively, while about only 2% of them were shared actively. Globally Vodafone now has 17 passive agreements and two active agreements (in Australia and Spain).
Outsourcing plays a part too
Although network sharing is an interesting way to reduce costs, announcements last week remind us that it is just one option. For example, Vodafone's network-sharing agreements with Telefonica follow a large seven-year outsourcing deal announced last week with Ericsson for Vodafone UK operations.
Thanks to the outsourcing contract, Jeni Mundy, CTO at Vodafone UK, stated that it expected "cost efficiencies of 25% over the life of the contract." The savings will include the transfer of 350 Vodafone employees to Ericsson. At the same time last week, Orange announced outsourcing deals with Nokia Siemens Networks for its operations in Spain and the UK. Orange will transfer 470 staff out of the business, with 230 going to NSN and the remainder to a front-line maintenance subcontractor in the UK.
Julian Grivolas, principal analyst, Ovum