Vodafone and O2 deal could save around £100m per year

UK operators Telefónica and Vodafone could save “at least 25 per cent of their network costs,” following the decision to extend their existing network sharing deal to create one single national grid.

Emeka Obiodu, senior telecoms strategy analyst at Ovum, said that considering Vodafone UK spent £575 million in capex in the year ended March 31 2012, the deal could lead to savings of over £100 million a year.

“Over the three years from now until 2015 when both parties expect to achieve 98 per cent indoor population coverage across 2G and 3G, the combined potential savings would be in excess of £600 million,” he estimated.

He added that by the time both parties roll out LTE, the potential savings would even be higher.

“The CEOs told us that the network sharing deal at the 2G and 3G level, especially with the installation of single RANs, is laying a solid foundation for further sharing on LTE. If we then assume that it could cost up to £1bn for each operator to roll out LTE in the UK, combined potential savings for both Vodafone and Telefonica from this deal would be worth in excess of £1bn by the time they hope to have a 98 per cent LTE coverage in 2015.”

Fred Huet, founder and managing partner at Greenwich Consulting, agreed that the deal will offer much more in terms of cost savings than the tower mast sharing deal that the two firms already had in place.

“They can start rationalising towers, as MBNL has been doing, and that has been a big driver. They can also save by doing some co-location and they also save on backhaul costs as well, so in general, you can cut quite a lot on the equipment costs.”

Obiodu also expects that, ultimately, at least 50 per cent of all LTE rollouts will use shared networks, and is not surprised that the UK is set to become a country with only two physical LTE networks from the Vodafone-Telefonica group and the Orange-T-Mobile-3 group.

“Since 2009, Ovum has warned that the financial realities facing mobile telcos means they have no choice but to share their networks. We posited that most countries will end up with not more than two networks. Going forward, we also expect that at least 50 per cent of all LTE network rollouts in the world in the next five years will involve some form of active network sharing.”