John Delaney
Vodafone and Orange aim for a double win on UK network sharing
Vodafone UK and Orange UK announced today that they have reached an agreement to share each other's radio access networks (RANs) across the UK. The two companies have signed non-binding heads of terms, under which they will continue managing their own traffic independently, retain full responsibility for the quality of service they offer their respective customers, and remain competitors in the UK mobile wholesale and retail markets. The project outlines plans for the two RANs to be combined over a number of years and covers both existing and new builds of the companies' 3G RANs. For 2G, the heads of terms commit to exploring opportunities as technical solutions become available. The agreement is confined to mobile; it does not encompass any fixed access networks.Comment: For some years, the UK's four GSM operators have had a roughly equal market share. One of them pushes ahead of the others from time to time, but none of them has managed to break through and become a clear market leader in terms of customer numbers. This means their near-term prospects for major economies of scale are limited, and therefore the UK operators need to focus on ways of keeping their costs down. In that context, both Vodafone and Orange have taken a big step forward in reducing future costs by agreeing to share their 3G RANs. Vodafone estimates that the move can reduce capex and opex costs by 20-30%, assuming full 2G and 3G consolidation. The nice thing about saving costs in this way is that it also means the operators can improve their service from the customers' point of view. All operators have local areas where their coverage is not as good as others. By sharing each others' RANs, Orange and Vodafone can extend their service coverage into some areas where their coverage is currently poor, by using each other's base stations. This benefit will also be extended to the operators' respective MVNO partners.The UK is not the first market in which Vodafone and Orange have shared networks - in Spain, for example, they are already sharing for new 3G builds - but this is still a relatively new way for mobile operators to serve their customers. It has great promise, in terms of both cost control and quality of services. If it can be made to work to the satisfaction of both operators, we would expect to see similar arrangements being developed in other territories. However, those arrangements may not necessarily be more Vodafone/Orange tie-ups. When we asked the operators what had made them choose each other as partners, both cited a cultural fit as the main reason. As Orange UK's VP of Strategy Marc Overton put it, 'we found we could work well together on a human level'. That 'human' fit may not be so good in other markets, because company culture varies greatly from country to country. In France and Italy, for example, we sometimes get the impression that operators take a good look at what their UK counterpart is doing - and then do something different!
