British telecom giant Vodafone Group Plc (VOD, VOD.L) and its Spanish rival Telefonica SA (TEF, TDE.L) on Thursday agreed to form a 50/50 joint venture in the UK by combining their mobile phone networks in an effort to expand coverage and provide high-speed mobile internet services amid increasing competition.
In a statement, Vodafone said both companies' UK divisions would jointly operate and manage a single network grid in the UK that will run two competing mobile internet and voice networks.
The companies expect that the deal will ensure their capability for the next generation of 4G mobile services, subject to the outcome of UK communications regulator Ofcom's auction of the wireless spectrum required for 4G services.
Vodafone noted that both companies are currently engaged in discussions with Ofcom and would establish the joint venture and network sharing arrangement later this year, following the satisfactory conclusion of those discussions.
Ronan Dunne, CEO of Telefónica UK said, "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."
Vodafone and Telefonica's European unit, called O2, had set up a joint team called Cornerstone back in March 2009 to share network assets across Europe, including UK.
Earlier, there were reports that both companies would consider expanding the network share beyond just infrastructure to compete with Everything Everywhere, a joint venture created by Germany's Deutsche Telekom AG (DTEGY.PK) and France Telecom SA (FTE).
Amid severe competition, more and more operators are sharing or outsourcing their networks as they do not see that as part of their core business.
Under the proposed agreement, both Vodafone and Telefonica will combine their existing basic network infrastructure, including towers and masts, which will be transferred to the joint venture or decommissioned over time.
However, both will retain complete control over their wireless spectrum, intelligent core networks and customer data and intend to continue to actively compete with each other.
Telefónica UK will manage and maintain radio equipment as well as local transmission in the East, including Northern Ireland and most of Scotland, and Vodafone UK in the West including Wales.
With the plan to create two competing networks, the companies expect to offer indoor 2G and 3G coverage targeting 98 percent of the UK population by 2015.
The companies envisage that the partnership will lay the foundations for two competing 4G networks to deliver a nationwide 4G service faster than could be achieved independently and up to two years before the anticipated regulatory requirement of 98 percent population coverage by 2017.
In London, Vodafone shares are currently trading at 168.81 pence, down 0.14 pence or 0.08 percent.
In Madrid, Telefonica shares are currently at 9.72 euros, up 0.12 euros or 1.21 percent.
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