Mobile services

BT Split Could Spur Vodafone to Invest in Fiber – Colao

Vodafone has held out the possibility of becoming a bigger investor in fiber access networks in the UK should regulatory authorities move to address BT's dominance by forcing the incumbent to spin off its infrastructure business.

Vodafone, which operates the UK's third-biggest mobile phone network, already channels some funding into fixed-line infrastructure but has not made investments in the rollout of high-speed connections into homes and small businesses.

In 2012, Vodafone Group plc (NYSE: VOD) paid £1 billion (US$1.55 billion) for Cable & Wireless Worldwide plc (London: CW), a telecom operator serving enterprise and government customers, and it recently launched a broadband service that relies on a wholesale deal with BT. (See Vodafone UK Enters Quad-Play Fray.)

Along with other UK operators, however, it has sounded increasingly unhappy about BT Group plc (NYSE: BT; London: BTA)'s grip on the communications market and is one of several players urging regulatory body Ofcom to break up BT in the interests of broadband competition. (See Split BT to Lessen Regulation, Says CityFibre, Ofcom Does Not Rule Out BT Carve-Up and Ofcom Could Still Make BT Do Splits.)

Vodafone's concerns have grown since BT announced plans for a £12.5 billion ($19.4 billion) takeover of EE , the UK's biggest mobile operator, earlier this year. (See and BT Locks Down £12.5B EE Takeover Deal.)

Reaffirming his position during an earnings call with analysts earlier today, Vodafone CEO Vittorio Colao indicated that appropriate regulation could even persuade him to start spending on fiber rollout.

"The regulator should have a serious look at the possibility of creating a true modern infrastructure company to serve the country," he said. "Vodafone could even be an investor in fiber if this was a genuine thing."

Colao also had a dig at BT's plans around VDSL and G.fast, a technology the incumbent is currently trialing that is supposed to boost connection speeds by extending the frequency range over which broadband signals travel.

"Going for VDSL and G.fast is a classic position that would strengthen their hold on the market and limit competition," Colao told analysts. "When you talk about the need for fiber that position indicates a low willingness to modernize."

BT has previously announced plans to provide 500Mbit/s services to most UK homes over the next ten years by using G.fast technology. But unless BT were forced to spin off its Openreach access business, rivals would still have to buy wholesale services from a retail competitor. (See BT Puts G.fast at Heart of Ultra-Fast Broadband Plans.)

Sky and TalkTalk , major broadband players that rely on wholesale agreements with BT, have recently complained that BT is able to squeeze them in the broadband market through a combination of high wholesale and low retail prices. (See BT Guilty of 'Under-Investment,' Says Sky.)

Those two companies are currently testing the waters of fiber investment, having teamed up on a fiber-to-the-home project in the city of York in partnership with CityFibre , an infrastructure company that has built gigabit-speed networks in a number of UK towns. (See TalkTalk Unveils Cut-Price Gigabit Service and TalkTalk's Small Fiber Beginnings.)

Colao has barely hinted that Vodafone might be interested in pursuing similar schemes but evidently believes the "structural separation" of BT is a prerequisite before it even considers taking the plunge.

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The Vodafone boss has also expressed concern about a £10.25 billion ($15.9 billion) takeover of Telefónica UK Ltd. , the country's second-biggest mobile operator, by Hong Kong's Hutchison Whampoa Ltd. (Hong Kong: 0013; Pink Sheets: HUWHY), which intends to merge the business with its Three UK subsidiary, currently the smallest of the UK's four mobile networks. (See Telefónica Seals $15.2B O2 Sale to Hutchison.)

Through a joint venture called Mobile Broadband Network Limited (MBNL), 3 currently shares network infrastructure with EE, while Telefónica UK -- which trades using the O2 brand -- has a similar arrangement in place with Vodafone through the Cornerstone Telecommunications Infrastructure (CTI) business.

Coleago Consulting, which specializes in spectrum issues, reckons one of those ventures would have to go following the takeover activity, noting that "whichever joint venture 3/O2 exits will put the jilted party at a financial disadvantage to the other mobile network operators."

Colao is obviously worried that if MBNL survives while CTI disappears Vodafone will be left fending for itself while BT, EE and a new-look 3 collaborate on network rollout.

"The UK should not allow re-monopolization through two deals of mobile and fixed data traffic, with potentially 75% of mobile traffic going into EE's network and potentially 90% of backhaul in BT's hands," he said.

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186k 7/25/2015 | 12:54:28 PM
Network sharing & barriers to entry Vodafone would be seriously screwed if O2 shifts to MBNL - I wonder if they considered that when they were rubbing their hands at all the lovely cost savings from network sharing with O2. I've thought for a while that these deals could include major regret costs and now we're seeing the possibility of that. Here's hoping that Margrethe Vestager maintains her tough stance & blocks the O2+3 deal

Also makes me laugh to see Vodafone moaning about barriers to entry in pay TV when they've built a global business off the back of the biggest barriers going - gov spectrum licences
Mitch Wagner 7/24/2015 | 2:14:29 PM
Weak They MIGHT invest in fiber? That seems weak, and more likely to backfire and insult the regulators as it is to incent them to act as Vodafone wants.

Imagine your boss asks you to take on some extra work as a voluntary assignment. If he offers you extra money, that makes you more likely to do it. If he doesn't mention money at all, you might do it to be a team player. But if he says there MIGHT be a raise in it for you if you do it, you're likely to think, "What the hell, do you think I just graduated from college? I can't pay my mortgage on maybe-money."
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