Vodafone and Telefonica O2’s site sharing deal will go deeper over time

Posted by Paul Lambert Monday, March 23rd, 2009

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The deal announced by Vodafone and Telefonica O2 to share sites in European markets is just the first step to combining more elements of network infrastructure. The agreement announced today is less far-reaching than some had expected because it doesn’t cover actual equipment, such as base stations – that is, for now . . .

Under the agreement, Vodafone and Telefonica O2 will share sites in all European markets they both operate in: Ireland, the UK, Spain and Germany.

In the UK, both operators will focus on jointly building new sites and consolidating 2G and 3G sites, while in Germany they will share existing 2G and 3G sites. In Spain, meanwhile, Telefonica and Vodafone plan to extend their site-sharing agreement from 2007, which includes the shared use of power, cabinets and masts. To date, 2,200 sites are shared under the agreement. In 2009 and 2010, additional sites will be included. And in Ireland, the two operators will open all network sites for sharing by the other party. New building will also be conducted jointly where rollout plans are aligned.

The operators say that the agreement will improve their network coverage, lower costs, and help them focus on delivering services. The move highlights the shift in mentality operators are undergoing: infrastructure is no longer a key differentiator for operators. While Matthew Key, Telefonica O2 CEO said that the economic downturn was “a bit of a catalyst” for the agreement, it’s clear that it embodies the direction the majority of operators are headed: the main focus is on services rather than on building and operating networks.

Indeed, both Vodafone and O2 were at pains today to emphasise that these measures are “just the start” of future cooperation between the companies. In these economic times this message is surely aimed at the finance community more than any other, and the message is: opex is coming down.

Although neither Vodafone nor O2 would be drawn on how much the savings from the agreement will be beyond the “several hundred millions” stated in the press release, the message is that these operators are reacting to on-going margin erosion affecting them in Europe.

While the agreement announced today will see the operators share what are called “passive” elements of the network, such as the sites where base stations are located, they will actively seek to expand this to “active” elements of the network. Active components of the network include base stations and antennae.

One area the operators will begin looking at in the next few months is sharing the transmission of traffic from the base station to the core network. Other areas of collaboration for the operators, that is to say, areas where cost savings can be made, remain undefined for now.

Looking beyond where we are today, it’s by no means a daring leap into the unknown to predict that Vodafone and O2 won’t build out two entirely separate LTE networks in countries where they both undertake to offer LTE-based services. Regulatory approval permitting, that is.

Vodafone and O2’s announcement certainly puts pressure on other operators to strike similar deals to produce similar cost savings, in particular France Telecom-owned Orange. Orange and Vodafone’s UK site sharing deal doesn’t have a future beyond what has been achieved to date. T-mobile and 3 UK’s network sharing deal means that Orange UK is out on its own without a future network partner.

Following today’s announcement, it won’t just be Orange wondering who to call first to discuss infrastructure sharing. Operators around the world will be asking the same question.