Analysts: Vodafone-O2 deal will save more than £1bn

By Sooraj Shah
07 Jun 2012 View Comments

Vodafone and Telefonica UK (O2)'s plans announced earlier today to merge the basic parts of their network infrastructure will save the companies a combined £1bn by 2015, according to analyst group Ovum.

In a briefing, the CEOs of Vodafone UK and Telefonia UK did not disclose any financial expectations from the joint venture.

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However, Ovum estimated that the companies could save more than £1bn across 2G, 3G and 4G services by 2015.

"Both Vodafone and Telefonica can look forward to saving at least 25 per cent of their network costs," said Emeke Obiodu, senior telecoms strategy analyst at Ovum.

He added: "Considering that Vodafone UK spent £575m in capital expenditure in the year ended March 31 2012, this could lead to savings of over £100m per 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 £600m."

Obiodu said that by the time both parties roll out 4G services, the potential savings could be even higher.

"The CEOs told us that the network-sharing deal at the 2G and 3G level, especially with the installation of single RANs [radio access networks], 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," he said.

O2 and Vodafone said that the partnership would ensure that 4G mobile services will be rolled out faster than could be achieved independently.

According to Ovum analyst Jeremy Green, this would enable it to rival Everything Everywhere, which has applied to roll out 4G services on its existing 1800 MHz spectrum. If it was successful, Everything Everywhere could release 4G services before any of its rivals, who have to wait until a spectrum auction that is to be held at the end of the year.

In March, CEO of rival network Three, David Dyson, said that an early 4G launch for Everything Everywhere would give it an unfair advantage, and his concerns were shared by head of spectrum at Telefonica O2, Nicholas Blades.

Ofcom bowed to pressure from rival networks and extended a consultation period for it to make a decision, which it is now due to make.

In a similar vein, Everything Everywhere has today called on Ofcom to ensure that the O2 and Vodafone deal is fair.

"It's good to see the other two key players in the UK market being spurred into action following our call to bring 4G to Britain this year. As with any plan of this scale, we would expect Ofcom to carefully review the proposal to ensure long-term fairness and competition across all aspects of the industry," said an Everything Everywhere spokesperson.

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