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Billions Hang on EC Judgment

Light Reading
LR Mobile News Analysis
Light Reading
8/28/2002

European rivals T-Mobile and mmO2 plc are waiting for a decision by the EC's Competition Commission that could save both carriers billions of Euros in capital expenditure. The two companies want to share facilities as they build out their 3G networks in Germany and the U.K.

Just how much money the pair can save will be determined by what officials at the EC deem to be potentially anticompetitive. And while general media reports suggest that decision is likely to allow cooperation, the two carriers know that nothing is settled and that the detail in any ruling will determine just how much they could save.

So far, the carriers have planned their cooperation within the terms of their licenses. Their submission for the sharing of facilities in Germany -- including masts, towers, sites, antennas, and cables -- complies with guidelines from The Regulatory Authority for Telecommunications and Posts, known as RegTP. The EC stated on August 9 that it "intends to take a favourable view in respect of the notified agreement." A good sign. However, "Before doing so, the Commission invites third parties to submit their comments." That procedure is continuing until September 9.

The sharing arrangement for the U.K. is being treated separately, and the EC is still to make a judgment. Despite suggestions to the contrary, no decision is expected from the EC regarding the U.K. proposition until October, according to T-Mobile.

The operators are very keen to point out that what they are proposing to share does not include any part of the intelligent network. "It's the physical infrastructure -- concrete base stations, masts, and not the electronics," says an mmO2 spokesman. "It's bricks and mortar. We would construct in one area and [T-Mobile] would build in another. Then the facilities would be shared." To mmO2, being able to co-construct could save it up to €2 billion over 10 years.

There is, however, one aspect of this physical sharing that is not so clearcut, and it will affect the cost of buildout in the U.K. -- that's the sharing of a single mast that would then feed into two networks. "One of the things the EC has to decide about is Utran [UMTS terrestrial radio access network] sharing. Instead of having two masts at the same site you have one. It's a nifty piece of equipment that would save us a lot of money."

Basically, the EC must decide whether the equipment the carriers hope to share would mean the traffic carried across the two operators' frequencies is still logically separated at the mast: the management of the voice and data has to be segregated if the carriers are to remain as competitive operators.

T-Mobile is less detailed about its aspirations. At first, a spokesman told Unstrung that the main issue with sharing a single mast is one of capacity. When pressed for more details, the operator's line changed somewhat. The EC's review "pertains to cost issues only, and nothing else. They are looking at whether we would be allowed to divide the cost, facilities, and resources in maintaining and building a 3G network." What about quality of service issues that might arise? "Well, that's an interesting point, and these are exactly the issues that the EC will be considering at this point in time."

In which case, it's not simply a cost issue, it seems. How would the carriers manage such shared infrastructure? "We're some way off having to decide on that, although that does beg a lot of questions." No kidding. "We're just concerned with getting the go-ahead on the principle of sharing facilities."

T-Mobile is certainly hoping some of the broader issues will come into consideration. "It has long been the aim of mobile operators to share as much as possible, whether 2G or 3G. It's good for community relations, as well as costs, if you can have two masts instead of three or four."

John Fletcher, a senior consultant at Analysys Consulting, says the EC will be looking simply at whether such an agreement would be anti-competitive, "and that would be the prime concern of the national regulators too -- as long as customers are not seen to be disadvantaged."

That could happen if the two carriers were to sit down at a table and plan their network rollouts around each other's to meet their license obligations at the minimum cost. If they were to do that, some areas that might have figured in the coverage plans of the operators were they building all their own infrastructure might have fewer service providers as a result, and that would limit customer choice. The regulator will need to be clear how any sharing plans are arrived at, as the two companies should only be allowed to share facilities where both had already planned to buildout. "That's not to suggest in any way that these companies might seek to do anything anticompetitive," says Fletcher.

He adds that the sharing of radio frequencies would be much more controversial and would not be allowed. "That would lead to inefficient use of spectrum, and that goes against license conditions and would limit service delivery, which wouldn't be good for the customers."

So, while the EC runs its eyes over the carriers' plans for the U.K. and considers comments from the industry concerning the sharing plans in both countries, the carriers -- and, indeed, the equipment suppliers that stand to win or lose contracts -- will have to wait for detailed announcements from Brussels before altering their bottom lines.

— Ray Le Maistre, European Editor, Unstrung
http://www.unstrung.com

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