The two companies have been looking for ways to share assets since they formed their Cornerstone partnership in 2009 and have been sharing some cell sites during the past few years. (See VOD, O2 Share Nets.)
This new agreement, though, means both companies are pooling all their backhaul transmission, towers, masts and radio access equipment into a joint venture company, a move that will boost both operators' coverage (each will have access to about 40 percent more sites than at present) and save money. A Telefónica UK spokesman says the partnership will "deliver significant savings, but we're not disclosing figures right now."
The result will be a network that will enable both operators to target 98 percent of the U.K. population (about 62 million people) with indoor 2G and 3G services by 2015.
The partners are keen to point out, though, that they are sharing only their physical assets and that while there will be a single shared physical grid, each company will be operating their own independent spectrum, packet core and customer data systems and be competing with each other for customers and revenues.
The joint venture will design, manage and maintain the cell sites (including radio access equipment) and backhaul connections across the U.K. (England, Scotland, Wales and Northern Ireland). In time, each partner will take responsibility, within the joint venture, for running half the network: Telefónica UK in the "East," which includes Northern Ireland and most of Scotland; and Vodafone UK in the "West," including Wales.
The partners believe that the new, expanded relationship will enable them to roll out LTE much quicker than if they worked independently. If, as planned, both operators secure LTE licenses and spectrum in the upcoming auction (due later this year), the two operators believe they can offer a nationwide 4G service "up to two years before the anticipated regulatory requirement of 98% population coverage by 2017." (See Ofcom Tweaks LTE Spectrum Proposals and A 4G Pig's Ear.)
Vodafone UK currently has about 19.2 million mobile customers while Telefónica UK, which provides its services under the O2 brand, has 23.3 million customers.
Why this matters
For Telefónica UK and Vodafone UK it means improved coverage at a reduced cost, enabling them to better compete with their rivals Orange UK and T-Mobile UK, which have been running a joint operation under the name EE since May 2010. (See Orange, T-Mobile Do Everything Everywhere .)
If this joint venture goes well, it's possible it will provide the template for similar joint operations in other territories across Europe, such as Germany and the Czech Republic.
It's more bad news for the vendor community, though, as by pooling their assets the two operators will be able to decommission some sites that overlap, meaning they will need less cell site and backhaul equipment.
There is, though, the tantalizing prospect that the joint venture may outsource the management and maintenance of the physical networks to managed services providers, a move that could provide major opportunities for the likes of Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), Huawei Technologies Co. Ltd. and Nokia Networks .
- Orange: Operators Must Share LTE Networks
- Huawei, NSN Land Euro Network Share Deal
- Euro Carriers Get Cozy With Network Sharing
- DT & FT Deepen Ties
- Irish Operators Strike First Network Share Deal
— Ray Le Maistre, International Managing Editor, Light Reading