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June 07, 2012

Telefonica UK and Vodafone UK to Combine Networks

By Gary Kim, Contributing Editor

Telefónica UK and Vodafone (News - Alert) UK plan to create a new joint venture company that will own all radio transmission facilities operated separately by each firm, creating a single network of 18,500 sites. The firms will still compete at the retail level, but hopefully with reduced costs.

Both companies will retain complete control over their own wireless spectrum, intelligent core networks and customer data.

That approach has been used in other mobile markets, such as India. In Canada, Mobility and TELUS have done so. Telefónica O2 (News - Alert) and Vodafone already do this in Germany, Ireland and Spain. France Telecom and Vodafone share infrastructure in Spain, while EVN Telecom and Vietnamobile collaborate in Vietnam.

The obvious advantages are a significant reduction in capital investment and operating expense for a part of the business that is not seen to provide end user value and differentiation.

A study by Analysys (News - Alert) Mason suggests that operators that jointly roll out a new build of 2500 sites in a developed economy will typically achieve a 30-percent capex saving accumulated over five years, and also might reduce opex by 15 percent per year by the fifth year.

Some will see analogies in the fixed network business as well, but the analogy is not precise. What typically happens in most instances is that one incumbent provider is required to provide unbundled network elements or fully-provisioned loops at wholesale to all retail competitors who wish to buy.

In recent years, there has been a bigger move to a structurally separated approach, where an independent wholesale local loop company is created to supply access services and voice to all retail competitors. Australia, New Zealand, Malaysia and Singapore are the best examples.

In North America, fixed network operators, including both cable and telco contestants, continue to see strategic value in owning their own networks, though partly to take advantage of the scarcity of such facilities and the high cost of duplicating those networks.

Clearwire provides the best example of a wholesale platform approach in the U.S. mobile market, and LightSquared (News - Alert) hopes to do the same. So far, though, no major U.S. fixed network services provider has really preferred to divest its infrastructure. The exception is the former Rochester Telephone Company in Rochester, N.Y.

Whether or not mobile network infrastructure sharing is merely a tactical approach to controlling operating expense and capital investment, or represents something more in competitive dynamics, is not clear.

In the fixed network domain, structural separation tends to be seen as a strategic shift – not a tactical move – as it puts all competitors on equal footing, at least in terms of access facilities. 

Edited by Braden Becker
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