Telefonica and Vodafone are planning an infrastructure joint venture in the UK, the companies announced.
The 50/50 JV will create a single national grid by consolidating their basic network infrastructure, including towers and masts. As a result,…
Telefonica and Vodafone are planning an infrastructure joint venture in the UK, the companies announced.
The 50/50 JV will create a single national grid by consolidating their basic network infrastructure, including towers and masts. As a result, they will each have access to 18,500 masts – representing a site increase of more than 40% increase for both, according to their joint statement. Aiming to provide 98% of the UK population with 2G and 3G coverage to by 2015, the JV will also be responsible for building new sites to extend coverage to rural and remote areas.
Despite the infrastructure sharing, Vodafone UK and Telefonica UK will continue to operate their voice and internet networks independently.
The companies, which decided in 2009 already to share their passive infrastructure via their Cornerstone joint venture, said they believe the new agreement will enable them to roll out competing 4G networks far more quickly then they could do independently. More specifically, they expect to meet the regulatory requirement to provide 4G coverage to 98% of the population up to two years before the 2017 deadline.
Telefonica UK CEO Ronan Dunne said: “One physical grid running independent networks will mean greater efficiency, fewer site builds, broader coverage and, crucially, investment in innovation and better competition for the customer”.
The companies were keen to stress that, while they will jointly operate the national grid, they will continue to offer competing products and services. Both will retain control over their wireless spectrum, ‘intelligent’ core networks and customer data.
Telefonica and Vodafone noted that their planned launch of 4G services is subject to the outcome of regulator Ofcom’s upcoming spectrum auction, in which both will participate independently.
Regulatory approvals
A spokesperson for O2 said that the companies do not expect the joint venture to require antitrust approvals from the European Commission or the UK’s Office of Fair Trading.
But, according to the joint statement, the companies are in discussions with UK telelcoms regulator Ofcom. Provided these go well, they intend to establish the JV and network sharing agreement this year.
Bernstein Research analysts described the JV as “a very attractive strategy” which serves both company and consumer interests and is therefore likely to gain regulatory approval.
Bernstein estimated the plan could be worth between €1.2bn and €1.5bn for both Telefonica and Vodafone’s UK businesses, representing a 3% upside on the former’s share price and a 5% upside on the latter’s.
A model for other markets?
Bernstein speculated that the two operators may eventually decide to share network infrastructure in other areas in which they both operate, such as Ireland, Spain, Germany and the Czech Republic.
“Vodafone and Telefonica are the only companies that could pursue this strategy in a game-changing way; not only would it be revolutionary, but it would probably accrue equal benefits to both partners without complicated value adjustments.”
Both Telefonica and Vodafone could see an incremental €11bn to €12bn in value creation if they were to pool their assets in all the abovementioned countries.
