Vodafone and O2 to pool UK networks

Major European operators are stepping up their efforts to reduce costs and achieve greater economies of scale, often via partnerships with rivals. The latest development comes in the UK, where the second and third cellcos, Vodafone and Telefonica O2, are to extend their network sharing alliance, to boost efficiency and increase coverage. They also aim to accelerate 4G build-out, meeting the challenge set by Everything Everywhere's aggressive LTE plans.

The two players announced a network sharing agreement, Cornerstone, in 2009, but this has had less far-reaching effects than MBNL, the infrastructure joint venture between T-Mobile (now Everything Everywhere) and 3UK. Now it will be significantly expanded, with the partners promising to pool their resources to create "one grid, two networks". The shared 'grid' will consist of 18,500 sites and pledges to improve 2G and 3G coverage, especially indoors, where their target is 98% by 2015.

The implications for the firms' future LTE roll-outs are not yet detailed, although the participants said the new deal would "lay the foundations" for rolling out respective 4G networks, more quickly than they would otherwise have been able to do. The 4G challenge is likely to be one factor behind the intensified alliance. Vodafone and O2 are battling proposals by Everything Everywhere to refarm its 1.8GHz spectrum to launch LTE services as early as this fall, before its rivals have the chance to acquire new frequencies at auction. The dispute highlights the superior scale and cost efficiencies that EE's parents, Deutsche Telekom and France Telecom, gained via their joint venture.

Most large operators are looking for similar partnerships around Europe as they aim to reduce costs, in a situation where they have to make major investments in mobile broadband amid an economic crisis. O2 parent Telefonica is also considering wholesale restructuring, and possible IPOs of some of its subsidiaries.

In its latest move, it says the deal with Vodafone will allow both firms to offer fully competitive networks on their shared grid of sites. The two cellcos will continue to control their own spectrum and services but will consolidate their existing basic infrastructure, including towers and masts, which will be transferred to the joint venture or decommissioned over time. Each operator will achieve a 40% increase in respective site numbers, boosting coverage, and the JV will be responsible for building new sites to extend coverage into rural and remote areas. The partners aim to reduce their shared site total by 10% by eliminating duplication.

Over time the operators will create regional division of responsibility for design, management and maintenance of the radio equipment as well as local backhaul, connecting to each player's intelligent backbone. O2 will manage these elements in the eastern half of the UK (including Northern Ireland and most of Scotland) and Vodafone UK in the west (including Wales).

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