Vodafone, O2 Hint at UK Towers Sale in 5G Update

UK mobile operators Vodafone and O2 have raised the possibility of selling tower assets currently owned by CTIL, their network-sharing joint venture, as both companies extend their arrangements to cover forthcoming 5G technology.

The operators have today flagged plans to give CTIL a bigger role in the management of their "passive" tower infrastructure, which includes the physical sites and buildings but not the electronic components installed at them.

Following that move, other companies could potentially make use of the towers, they said in a joint statement, with CTIL functioning much like American Tower or Crown Castle -- US tower companies that lease infrastructure, equipment and services to mobile operators.

Accordingly, Vodafone UK and Telefónica UK Ltd. (O2) are to explore a "potential monetization" of CTIL once they have finalized their arrangements. The wording hints at a partial sale or full divestment of the assets.

The update comes only a few weeks after Vodafone Group plc (NYSE: VOD) announced plans to set up a "virtual internal tower company" across its European operations in a bid to further reduce costs. (See Vodafone Weighs Towers Sale, Swings to Net Loss for H1.)

Reporting financial results for the six months to end September, Vodafone said that this virtual tower company would manage about 58,000 towers across the European business and have a dedicated management team focused on cost reduction. "We are also conducting due diligence in order to determine the optimal strategic direction and financial direction of all our tower assets, including those held in joint ventures," said the operator at the time.

Under the move announced this week, Vodafone and O2 -- a subsidiary of Spanish telecom giant Telefónica -- will extend their network-sharing partnership to cover the provision of 5G services at various joint sites.

The goal is to speed up 5G deployment and boost coverage while also reducing the operating costs for each of the separate customer-facing organizations.

But while they are forming closer ties on passive equipment, the companies appear to be rolling back arrangements that cover the sharing of "active" equipment, which includes the electronics used in mobile networks.

In the statement issued today, the operators said they plan to roll out separate radio equipment at about 2,500 sites -- covering 15% of sites outside London.

Vodafone UK had given reporters a foretaste of its intentions during a press briefing last June, when Kye Prigg, the UK subsidiary's head of mobile and fixed networks, said Vodafone would "unwind the relationship with Telefónica in London" in preparation for the rollout of higher-speed 5G services. (See Vodafone, Telefónica End Network Sharing in London.)

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The operators have been sharing active equipment under an initiative called Project Beacon, with Vodafone taking responsibility for networks in the west of the UK and O2 managing those in the east.

In London, O2 has looked after the north of the capital, while Vodafone has taken responsibility for the south. Each company is now installing its own basestation assets in the territory where it would previously have relied on the other's.

While Project Beacon has allowed the operators to speed up network deployment, Vodafone appears to be concerned that service quality could suffer on shared infrastructure as volumes of data traffic grow.

Vodafone and O2 also today hinted at plans to share transmission networks as a means of further reducing costs.

The operators have said they will upgrade their transmission networks with higher-capacity optical systems to provide support for new 5G services. This should bring economies of scale and an "improved choice of infrastructure partners," they said, suggesting new vendors may be in the mix.

Cost-cutting appears to have become a priority for Vodafone under the leadership of Nick Read, who took over as Group CEO from Vittorio Colao last year.

Amid disappointing results in Italy and Spain, and competitive pressure in other parts of the world, Vodafone has been cutting jobs in its effort to boost margins.

In the UK, Vodafone is working toward a launch of 5G services in mid-2019 and has already carried out 5G trials in the cities of Birmingham, Bristol, Cardiff, Glasgow, Liverpool, London and Manchester. (See Vodafone UK: We'll Be Ready to Launch 5G in Mid-2019.)

— Iain Morris, International Editor, Light Reading