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Summary:

Vodafone and O2 are joining forces in Britain to share their grid and try to roll out 4G services faster than planned. It’s being painted as a great deal for consumers — but it’s actually being driven by the actions of their rivals.

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Updated: Two of Britain’s biggest mobile operators are joining forces, forging a pact that they say could bring higher-speed networking to the country ahead of schedule.

Vodafone and Telefónica-owned O2 announced on Thursday that they plan to merge their infrastructure, pooling together resources to create a grid of more than 18,000 mobile masts across Britain.

Under the agreement, a new joint venture known as Cornerstone will operate the back end of the two networks — but they will remain entirely separate businesses, in competition with each other. And although they will share their grids, they won’t share their spectrum.

This is actually a more formal approach to something the two companies have been doing for some time, since they first announced a network-sharing agreement back in 2009 as an attempt to reduce costs.

Still, the upside for consumers is that they think it will hasten the arrival of 4G connectivity, which has been beset by delays and isn’t expected to arrive for several years.

In a statement, O2 boss Ronan Dunne said that joining forces meant both companies could potentially deliver 4G speeds by 2015 — slow in comparison with some other countries, but not bad given that the official 4G spectrum auction hasn’t even happened yet.

“This partnership is about working smarter as an industry, so that we can focus on what really matters to our customers – delivering a superfast network up to two years faster than Ofcom envisages and to as many people as possible. 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.”

Update: A Vodafone spokesman told me that this essentially relies on the two companies being able to prepare the ground for 4G together — meaning that once the spectrum auction finally takes place, maybe late next year, they’ll be able to switch on faster than they could individually. In the meantime, it will also give them broader and deeper penetration of 2G and 3G networks, the company added.

But while the promise of 4G is grabbing headlines, the more obvious reason behind the deal is competitive: rivals T-Mobile and Orange recently merged to create a single operator known as Everything Everywhere, which effectively gives them a single infrastructure across Britain’s market of 62 million people.

In particular, a faster 4G rollout is something that Vodafone and O2 are being spooked into: Everything Everywhere has already received permission to operate an LTE network on its shared 3G infrastructure. That wasn’t just something that upset Vodafone and O2 — it was something they officially complained about.

Here’s O2 from March:

“We are concerned that Ofcom’s other proposal to allow one operator to launch 4G early on its existing spectrum is contradictory to its objective of delivering a competitive market environment with four competing players. This could expose the process to further risk of delay.”

Although the Cornerstone deal isn’t as deep a merger as Everything Everywhere, and it won’t use non-4G spectrum, it seems like a case of learning tactics from your competitors: if you can’t beat them, copy them.

The other hidden question here is who isn’t being brought in on one of these deals. Britain has five major mobile networks and this agreement leaves one of them, 3, out in the cold. I’ve got a call in to the company: it will be interesting to see how it responds.

Update: A spokesman for 3 got in touch to point out that it has been in a network-sharing agreement with T-Mobile for several years, operating under the name MBNL; of which Orange is now part of following the Everything Everywhere deal.

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  1. Kostas Papahatzis Thursday, June 7, 2012

    They seem to be in a real hurry.

    There is obviously some kind of limitation coming their way and they can see it. Possibly network congestions are becoming a standard issue especially in densly populated areas and it gets harder to deal with it with software, or other means of patching. This may be why they are sharing their networks. And, with all these smartphones tapping into video streaming and other badwidth-demanding activities, no wonder why they try to migrate to 4G. I simply have to assume that both companies’ quarterly revenues from bandwidth usage must be skyrocketing, but at the expense of running their networks dry. I can certainly understand their good will in delivering more to their subs. And there is plenty of room for more value added services when the time comes and flick the 4G switch. But the road to 4G will be as hard as the road to 3G, I am quite confident about it.

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