It will make a huge difference to Western cellular thinking now that Vodafone and Telefonica have disclosed a wide ranging agreement this week to share their mobile networks. Naturally with Vodafone being the largest mobile operator by revenue in the world, and Telefonica the second largest, this will trigger a series of copy cat deals, and further polarize European control of cellular.
The whole issue of merging mobile RAN networks should remain transparent to consumers ‘ they may find they get a little better reception but that’s about all. Vodafone and all the Telefonica brands such as O2 and Movistar will appear like separate networks, it’s just that they won’t be.
The deal comes as an about face for Vodafone, which has been known to be working with Orange for over a year, merging networks elements but only in the UK. The new Telefonica deal will operate in the UK, Germany, Spain, Ireland and later the Czech Republic, so we expect that old Orange deal to fall away. We also wouldn’t be surprised to see Vodafone and Telefonica building new networks where they both operate in the same emerging territories.
These moves will save hundreds of $millions for each of the two companies and what it involves is getting rid of a huge duplication of effort. A mobile phone network has a radio part, a switching part and a wired connection part ‘ phones talk to base stations, which then speak over broadband lines to mobile phone exchanges, which transports traffic across its backbone network and out the other end, through radio to the right phone.
Right now Vodafone and O2 duplicate the base stations, duplicate the expense of building or renting towers to put their base stations on, each separately pay to carry the traffic to their switches, and then duplicate the effort all over again when it comes out the other end of their switches on the journey to the next phone.
In the UK at least, O2 is known to have great coverage in cities, while Vodafone is known to have the best rural coverage, so once they are merged and it will no longer matters which network your phone talks to ‘ an O2 base station or a Vodafone base station ‘ then customers will have the best of both worlds. The two companies will also be able to share any towers they own with each other, and where they have too many base stations between them, they can take them down, and cut costs.
Much coverage suggested this might lead to consumers getting cost cuts but we’re pretty sceptical. Certainly the costs can be cut an awful lot with this, but so far these two companies are in the habit of putting that straight into their shareholder’s pockets, not their customers. It means that when rivals come up with something cheaper or better, these two companies will be able to match prices easily so they don’t lose out. It will also mean that when it comes to roaming overseas they will be able to offer slicker deals if they choose to, but there’s no guarantee of that and actually this may work the other way ‘ prices could actually rise.
Most handsets can reach most base stations, so we can expect more deals of this type, and perhaps Orange will be driven into the arms of T-Mobile to share their network costs in the UK and within Europe. This will mean that these two blocks will make it tough for local rivals to match prices in the future, or network reach. As a result this may lead to just two major consortia being able to control most cellular networks in Europe, and with that few networks they will be in an even stronger position to dictate terms to handset markers, base station suppliers and customers and to other smaller cellular operators that wish to offer roaming with them.
Telef’nica and Vodafone say they are actively exploring opportunities to cooperate in related areas such as the provision of transmission services.
There will be a different level of sharing across the two networks in different countries, which in the UK and Ireland will include masts, antennas, sites, cabinets and power supplies.
It was as recently as January that Orange and Vodafone re-iterated plans to expand their existing deal on sharing networks to include sharing the costs of engineering, maintenance and technology. Now that effort looks wasted.