Vodafone-O2 deal close, could reduce UK to two networks

by Caroline Gabriel, ReThink Wireless

UK mobile operators Vodafone and O2 are close to signing a network sharing deal to boost 3G coverage quickly and reduce operating costs. If the agreement is finalised in the next few weeks, as expected, Orange is likely to ask to join the existing RAN sharing venture between T-Mobile and 3 UK, Mobile Broadband Limited, which would break the hyper-competitive UK mobile market into two major access network operations.

As reported in The Guardian newspaper, the two deals would leave all five cellcos competing under their own brands, but sharing towers and base stations to cut costs. This would lead to an estimated net reduction in base station numbers of about 51,000 nationwide.

Vodafone and O2 are complementary in coverage terms, with Vodafone having the best GSM network, while O2 remains patchy in rural areas. One of the main objectives would be to improve rural services, especially as the operators move towards refarming 900MHz spectrum for 3G services, which would also be geared to the countryside. The two carriers may also look at spectrum sharing, especially with the auctions of 2.6GHz ‘4G’ licenses coming up. Joint bids could reduce competition and bring down the price, though increased use of 900MHz for 3G could also mitigate the requirement for 2.6GHz spectrum.

A deal could also impact the row over 900MHz refarming – Vodafone and O2, the holders of licenses in this band, are being ordered by regulator Ofcom to transfer some of their holdings to T-Mobile and Orange, to create a more level playing field in rural mobile broadband. Sharing would enable the two giants to pool their remaining 900MHz assets and make more efficient use of them for 3G.

The arrangements would have to be cleared by the Competition Commission and the Office of Fair Trading. Neither operator has made any official comment, although Vodafone told The Guardian: “We regularly review our plans to ensure Vodafone UK is best placed to take advantage of network sharing schemes now and in the future; while O2 added, in a report in fellow UK newspaper The Financial Times: “There are cost efficiencies but at the same time we must ensure the customer experience is not impacted.”