Vodafone and Telefonica O2 may have a tough time convincing UK regulators to clear their proposed network sharing deal.
Telecoms executives who spoke to the Financial Times said telecoms agency Ofcom and the Office of Fair Trading would both need to be reassured that the partnership would not amount to a merger by stealth, or reduce competition. The UK market already consolidated when France Telecom and Deutsche Telekom merged their subsidiaries in the country to form Everything Everywhere, which in turn shares its masts with 3UK under a joint venture called MBNL.
Although there is a powerful logic behind the argument that, in the 4G era, fewer networks will be built, with wholesale pipes supporting many brands ‘ as happened in the wireline sector in some countries ‘ competition watchdogs remain concerned that there could be too little differentiation by service quality, which could discourage investment in the best technology.
Vodafone and O2 already have a limited sharing deal but recently proposed a far more radical plan which would combine their total of 18,500 cell sites, as well as pooling resources in some elements of expansion and 4G upgrade. A separate joint venture, called CTI, would be set up to own and manage masts. However, the FT says it would include a property transaction that could qualify as a reviewable merger under the Enterprise Act.
However, many observers believe the plan will get the green light, provided the partners indicate that they will pass some of the cost savings onto customers, and/or invest them in improving the retail and customer experience. Analysts at Bernstein calculate the firms could save between €1.2bn and €1.5bn each in operating costs.
The operators say they will continue to compete on services and own their own spectrum, and argue that sharing would improve coverage and actually allow for more competition in retail services. Telefonica would manage the network in the east of England, Scotland and Northern Ireland, and Vodafone in the west of England and Wales.
Vodafone said in a statement: ‘We can confirm that Telefonica and Vodafone will shortly be submitting formally their plans to solidify their existing partnership by creating a company that will own a grid of 18,500 joint mast sites across the country. Telefonica and Vodafone believe the deal will improve competition, help close the digital divide between urban and rural areas and ultimately deliver even better services for UK consumers.’
Vodafone has formed a similar venture with 3 Ireland and is holding talks for a sharing arrangement in Greece.