Vodafone and O2 merge network infrastructure to rival Everything Everywhere

Operators could speed-up 4G rollout but will still compete with each other

Vodafone and Telefónica UK (O2) have announced plans to merge the basic parts of their network infrastructure to establish one national grid that will be used to run each operator's independent spectrum.

The plan will develop the companies' existing network partnership, Cornerstone, which was announced in 2009 as the two companies bid to compete against rival Everything Everywhere, which was formed by a merger of the networks of mobile operators T-Mobile and Orange.

Just as with Cornerstone, both companies will retain complete control over their wireless spectrum, networks and customer data, and will continue to compete with each other in all products and services.

"One physical grid, running independent networks, will mean greater efficiency, fewer site builds, broader coverage and, crucially, investment in innovation and better competition for the customer," said Ronan Dunne, CEO of Telefónica UK.

"It will create two stronger players who will compete with each other and with other operators to bring the benefits of mobile internet services to consumers and businesses across the country. We have learned a lot from our existing network collaboration but now it is time for it to evolve," said Guy Laurence, CEO of Vodafone UK.

Under the proposals, both companies will have access to a single grid of 18,500 masts, more than a 40 per cent increase for each operator. O2 and Vodafone are targeting 98 per cent indoor population coverage across 2G and 3G by 2015.

The two companies also said that the partnership will ensure that 4G mobile services will be rolled out faster than could be achieved independently and up to two years before the anticipated regulatory requirement of 98 per cent population coverage by 2017, proposed by regulator Ofcom.

Rival Everything Everywhere has long campaigned that the rollout of 4G services should be speeded up. However, its 4GBritain campaign launched last month was berated by its rivals, who claimed that it was a campaign solely in the interest of Everything Everywhere.

Ofcom is due to make a decision on what happens to Everything Everywhere's existing 1800MHz spectrum. Other operators state that it would not be in the interest of competition for Everything Everywhere to use the spectrum to launch 4G services this year before its rivals have the chance to acquire new frequencies at auction.

Jeremy Green, principal analyst at Ovum, believes that the strengthened O2/Vodafone partnership will enable both mobile operators to compete against Everything Everywhere and said that it reinforced the idea that most countries will end up with only two physical 4G networks.

"This is an entirely sensible move by Vodafone and Telefónica in the UK. In fact, [Ovum] did predict this as early as 2008, when we said that most countries would end up with only two physical LTE networks.

"It follows on from the merger of T-Mobile and Orange in the UK into Everything Everywhere. If Vodafone and Telefónica had not also embraced sharing in this way they would have been at a competitive disadvantage. As it was, they were able to build on and extend the relationship that they already had through Cornerstone, their existing joint venture. This sets them up well for the 4G rollout and will help them catch up on 2/3G rollout to," he said.

"Both operators stress that it has no implications for their relationship elsewhere, and that they will continue to compete on services. This move follows the logic of network economics and technological possibility, and is what the near future is going to look like," he added.