Telefónica and Vodafone Sign Network-Sharing Deal

Telefónica and Vodafone have announced a network-sharing deal across four of their key European markets, which will see the operators share and build infrastructure in Spain, Germany, Ireland and the United Kingdom. Reuters reports the deal will cover about 64 million Telefónica customers and nearly 90 million Vodafone customers.

In the United Kingdom and Ireland, the operators will share masts, antennas, base station sites, cabinets, and power supply. The agreement also sees plans to roll out future infrastructure jointly in Ireland, while in the United Kingdom, the companies will consolidate their existing 2G and 3G infrastructures.

In Germany and Spain, masts and cabinets are shared, along with power supplies, but some core radio network infrastructure will remain independent. In Germany, the companies will share their 2G and 3G mobile networks, while in Spain, where the operators have an existing deal to share base stations, the operators will share all new sites rolled out during the next two years.

A joint statement from the European giants read: "It is foreseen that this programme could generate significant benefits including estimated cost savings in the region of hundreds of millions of euros, for both companies, in the next 10 years," and added that Vodafone and Telefónica were studying further cost savings in other related areas.

Outlook and Implications

• The Operators Target Further Savings: The network-sharing agreement between Vodafone and Telefónica is a clear sign of how difficult the operators are expecting things to become in Western Europe as the global economic crisis bites. Vodafone has already cut its 2009 forecasts and unveiled plans to cut £1 billion (US$1.45 billion) in costs, resulting in the announcement of 500 job losses last month (see United Kingdom: 25 February 2009: Vodafone Confirms 500 U.K. Job Losses as Cost-Cutting Bites). The operator has just announced it plans to freeze all salaries at its U.K. subsidiary, following a similar freeze at BT (see United Kingdom: 12 March 2009: BT Freezes Pay in U.K. in Bid to Save US$55 mil.). Meanwhile, Telefónica has announced it is scaling back capex by nearly 13% in 2009, and has been forced to lower mobile and high-speed Internet rates due to stiffer competition in key markets such as Spain (see Spain: 18 March 2009: Telefónica Halves Fixed and Mobile Phone Bills for Spanish Unemployed). All the major operators are now willing to consider any options to cut costs—and network-sharing deals, even with bitter rivals, offer a key opportunity to save.

• An Unprecedented Network-Sharing Deal? Vodafone's network-sharing talks with Telefónica have been the subject of speculation for some time (see Europe: 17 March 2009: Telefónica, Vodafone Study Network Sharing on Six European Markets—Report), with some analysts speculating the deal could be extended beyond the existing four markets. Only two or three years ago, this kind of deal would have been unimaginable, as the two largest operators in Europe have a long-standing rivalry for share of the global market. However, as recent Vodafone and Orange network managed service and outsourcing deals have shown (see United Kingdom: 19 March 2009: Vodafone U.K. and Orange Sign Network Outsourcing Deals), even the largest operators are now willing to relinquish some control of their precious networks in order to cut capex. Telefónica and Vodafone will continue to compete strongly against each other in these key European markets, but the agreement will enable improved mobile coverage, while freeing up capex to roll out mobile broadband networks and other value-added services.

• Further Consolidation Expected: Telefónica Europe Chief Executive Matthew Key stated: "We are actively exploring additional areas for cooperation and, by reducing our costs in areas of the business that customers don't see, we can ensure that we invest in areas they truly value," as the two companies admit they are exploring the possibility of sharing transmission services. Orange has already hinted at plans to partner with other alternates on NGN roll-out in Spain (see Spain: 6 March 2009: Orange Spain Confirms Interest in Yoigo, Ready for NGN Sharing), and there are rumours the operator is considering similar partnerships and network sharing deals across many of its markets. In the past few months, other large European operators such as France Telecom, Deutsche Telekom, and KPN have unveiled plans to transfer the running of some subsidiary networks, with equipment vendors Ericsson, Alcatel-Lucent, and Nokia Siemens Networks (NSN) have all announced significant new outsourcing deals with operators recently. NSN has said it is looking to growth in the demand for its services offerings to reverse its ailing revenues, as operators look for opportunities to outsource (see World: 20 January 2009: Nokia Siemens Networks Hopes for Rising Demand in Managed Services). As operator focus shifts from expansion to cash preservation, IHS Global Insight expects to see further significant consolidation deals across key European networks, as any opportunity to seek savings is seized.