3/18/2009 12:49:00 PM
The Big Two operators combine assets
O2 and Vodafone’s network share deal will see the UK’s largest operators – and fierce competitors – join forces to build their network infrastructure.
The two operators are pairing up to share 2G, 3G, and data and transmission sites in a major new deal that is set to shake up the mobile market, as Mobile revealed last week (13 March).
It is underpinned by Stephen Carter’s Digital Britain report, which states every home should have access to a minimum of 2Mbps broadband by 2012 through fixed or mobile lines.
The report frees BT of its current obligation, under the Universal Service Commitment, to be the sole provider of fixed telephony to everyone in the
UK, and replaces it with what Carter calls a ‘modern equivalent – next generation broadband’.
O2 and Vodafone are using that as the catalyst for this collective project, but are also looking to make big savings in their capital expenditure costs.
Carter said the Government and Ofcom would consider further network sharing proposals from operators. In February, Carter summoned the big five mobile operators to discuss how to take his plans forward. Responses from operators, for the next stage of the report this summer, were submitted late last week.
Following in T-Mobile and 3’s footsteps
Rivals T-Mobile and 3 have already started pooling their networks, which was first announced in December 2007, and sees the operators sharing HSDPA networks and beginning to decommission masts, resulting in expected savings of £2bn over 10 years.
T-Mobile says the deal has already delivered significant savings, which it will invest elsewhere. The agreement has been set up as a 50:50 joint venture called Mobile Broadband Network Limited (MBNL).
Network share deals lower costs and will allow operators to reduce the 51,000 base stations across the country, and push mobile broadband into rural areas.
At present, mobile broadband services, which use 3G technology, cover 80% of the population and are focused on urban areas. Rival operators have been calling for Vodafone and O2 to share some of the 900MHz spectrum that they were awarded in the 1980s. It is viewed as an efficient spectrum and ideal for sharing more widely for mobile broadband.
Ofcom has said it wants 10% of the 900MHz spectrum to be released to
Where this leaves Orange
Vodafone’s existing network share partner, Orange – which appeared to be sidelined by the O2 deal – recently referred to the ‘opportunities’ that the Digital Britain report represented.
An Orange spokesman told Mobile: ‘These could see us open up additional bi-lateral or multi-lateral partnerships with other operators in the future, at both a UK and international level.’
It had become obvious to Vodafone that Orange was the wrong partner, after the negotiations on a deep share project, which was launched with fanfare by previous CEOs Nick Read (Vodafone) and Bernard Ghillebaert (Orange) in February 2007, stalled and eventually fizzled out amid a failure to agree on their relative network assets.
The two operators finally settled on a highly diluted version, which went no further than sharing the sites where the masts were transmitted.
However, in Spain, Orange and Vodafone have an effective network share, where the two operators have brought faster networks to rural areas and reduced their number of base stations by up to 40%.
There is a possibility that Orange could piggyback the current network share between T-Mobile and 3, which would leave the big five operators with only two UK networks.
Orange will no doubt have to pay a significant premium to encroach on the 3/T-Mobile MBNL agreement, but this is more cost efficient than creating its own HSDPA network on a scale to match Vodafone/O2 and 3/T-Mobile.
Orange appears to be the loser in a game of network musical chairs.
The Orange network already has a wholesale deal where it fills in the gaps in 3’s 80% coverage. Last month, group CEO Olaf Swantee fuelled rumours
further when he said: ‘What one operator cannot achieve, several can through co-operation.’
Speaking at Mobile World Congress, Swantee said: ‘It is the single biggest area for capital investment: we all know how expensive it is to deliver reliable and robust coverage. We also know that sometimes the maths doesn’t add up, and we can’t bring coverage to customers where population density is too low to make it economic for one operator.’
Orange says its agreement with Vodafone is ‘not exclusive’ and it will continue to share the masts. It adds that it is looking at how it could extend its deal on sites.
‘The deal with Vodafone doesn’t preclude us or them from working with other partners who can support our ambition to provide network excellence to our customers,’ a spokesman says.
Orange has been looking at the potential of expanding the ambition of the network share to go ‘wider and deeper’ and says this will require ‘additional complementary partnerships’.
T-Mobile says it would be ‘happy to talk to other operators at any time about further network sharing’. A spokesman says: ‘T-Mobile is focused on implementing our network consolidation agreement with 3 UK.’ The operator aims to have made significant progress towards achieving its objective of creating the ‘UK’s most extensive 3G coverage’.
He adds: ‘All the key enabling contracts have been awarded for the provision of cell sites, technology, backhaul, network design and deployment, as well as radio network operations.’ T-Mobile has been increasing network consolidation during the course of 2008 and is now running the integration programme at a ‘high pace’. It aims to achieve near complete nationwide 3G population coverage by 2010.
Job cuts loom in network share deal
Some view the network share between the two largest UK operators as unfair on the smaller competitors. Although the O2 and Vodafone deal could potentially be investigated for competition reasons, Ofcom and the Government are in favour of network shares as they support the plan to bring broadband to more people, bridging the so called ‘digital divide’.
Networks are looking to share deals for a reason. The lower the spectrum, the further it goes, and a higher frequency means less masts. The coverage needed for Digital Britain will require the number of masts to be doubled, or operators to engage in network share deals.
Vodafone and O2’s 900MHz coverage is currently poor in rural England, but Vodafone’s 3G coverage is ‘much better than O2’s’, according to one expert. He says: ‘I can understand why they are getting together.’
A deeper network share deal (rather than simply site sharing) can save on the costs of running a network, but can also mean significant job losses in the technology divisions of operators. Vodafone has already cut positions in its UK business, and is likely to cut more. It is also believed that redundancies are likely at O2. CEO Ronan Dunne said he ‘hadn’t ruled out’ job cuts as the company strives to be more efficient, earlier this month.
The ideal scenario would be a network share deal between all of the operators, but the spectrum would need to be ‘sorted out first’, say experts. Each site costs around £80,000 to build, but the cost savings are immense. Vodafone and O2 are believed to have around 25,000 masts, with a share agreement leading to at least a 25% decrease.
Consumers should see price cuts
Savings made from network share should lead to reductions in prices,
rather than simply being re-routed into the operators’ profits, and there are other savings.
Sharing a network should remove the interconnection