Vodafone and Telecom Italia (TIM) have formalized a network-sharing agreement that had been in the works ever since Italy's costly 5G spectrum auction last year.

The two operators announced late Friday they would pool their combined 22,000 mobile towers in Telecom Italia's Inwit subsidiary and share the "active" 4G and 5G equipment used at these sites. Each operator will have a 37.5% stake in Inwit and the option of further reducing its stake to just 25% by attracting new investors. Vodafone will receive a payment of €2.14 billion (US$2.4 billion) from Telecom Italia under the arrangement and expects to realize cost savings of €800 million ($890 million) during the next ten years.

Telecom Italia is eyeing a €1.4 billion ($1.6 billion) reduction in net debt, which totals about €25 billion ($27.8 billion) currently, as well as €800 million ($890 million) in ten-year cost savings. Each operator spent about €2.4 billion ($2.7 billion) on new 5G licenses last year -- way more than analysts had expected -- and has subsequently been under pressure to slash expenses in the fiercely competitive Italian telecom market.

Besides allowing the operators to reduce spending on equipment, the tie-up should support headcount reductions. The deal was announced shortly after Vodafone unveiled plans to set up a new European towers company that could be worth more than €18 billion ($20 billion), based on the company's estimates.

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— Iain Morris, International Editor, Light Reading