Telefónica, Vodafone to accelerate 5G rollout with new UK infrastructure deal
23 January 2019 | Jason McGee-Abe
Telefónica’s O2 and Vodafone UK have extended their current network sharing partnership to accelerate the deployment of 5G, at greater scale, and to do so at a lower cost.
The two groups said today that the network sharing extension would include 5G at joint radio network sites. Additionally, both parties will look to extend greater network autonomy and flexibility in a number of larger cities by deploying their own separate radio equipment on approximately 2,500 sites, which represents around 15% of sites outside London.
“I’m excited by the potential of these plans to meet the future needs of our customers while delivering value for our business. In addition, these plans would allow us to utilise the spectrum we acquired in the last auction very effectively,” said Mark Evans, CEO of Telefónica UK (pictured on the left).
Nick Jeffery, CEO of Vodafone UK (pictured on the right), added: “We believe that these plans will generate significant benefits for our business and our customers as we move into the digital era of connected devices, appliances and systems on a mass scale. Customers will benefit from the best 5G experience available and we will deliver even faster speeds by using our spectrum holding more effectively.”
The companies are set to upgrade their transmission networks with higher capacity optical fibre cables. This would enable customers to benefit from 5G’s new features, such as low latency, as well as provide both companies with greater economies of scale and an improved choice of infrastructure partners. O2 and Vodafone are also exploring options around delivering a shared, future proof fibre transmission network, which could drive synergies in the investment and operation of their end-to-end networks.
Tim Hatt, head of research at GSMA Intelligence, said the agreement reflects the need to achieve economies of scale, a renewed cycle of network investment to underpin 5G, and a pragmatic shift in telecom businesses towards a more asset-light model of network ownership.
“The network sharing partnership means that the two companies can achieve sizeable cost savings by having a single backbone of towers, and through increased buying leverage with their network equipment suppliers. This is particularly important for things like fibre-optic upgrades which are necessary to realise key promises of 5G such as AR and VR that require ultra-low latencies not available with current generation LTE networks.”
The companies also intend to devolve additional activities to CTIL, the 50:50 owned joint venture company that owns and manages the parties’ passive tower infrastructure. This will empower CTIL to take an enhanced role in the operation of the passive infrastructure, in order to improve the efficiency of its operations and pursue opportunities to add further third party tenants to the towers. In that context, the parties will explore a potential monetisation of CTIL after the new arrangements have been finalised.
The news follows what Nick Read, Vodafone Group's CEO, said in November that the company intends to create a virtual internal tower company across its European operations, and it is reviewing strategic options for those assets as the company plans to lower its European net operating expenses by at least €1.2 billion by fiscal year 2021.
“The fact that Vodafone and O2 have also mooted the option of selling the JV that currently manages their shared tower estate (CTIL) is testament to this wider strategy of consolidating infrastructure ownership to free up cash for other purposes, be that paying down debt or strategic investment in new growth areas like IoT,” said Hatt.
He forecasts 5G to reach 43% of mobile connections by 2025 in the UK, well above the European average of 29%. “The 5G era will see more shared and even leased access models of network operation given the heterogeneous demands from new high capacity small cells in dense urban centres to macro sites in suburban and rural areas – the hardest to reach. To achieve this, the UK operators will need to spend £4 billion in capex – and that doesn’t include new spectrum,” Hatt added.
In December, UK telecoms regulator Ofcom unveiled plans to auction two tranches of 5G spectrum in the 700MHz, 3.6GHz and 38GHz bands by early 2020, but will impose a limit on the amount of spectrum any single operator can hold.
O2 and Vodafone envisage concluding the customary legal and regulatory approvals during 2019.
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