Vodafone, Telefonica to share Europe network sites

Vodafone and Telefonica have agreed to share network infrastructure in four European countries to meet a surge in demand for mobile broadband while saving hundreds of millions of pounds in costs.

The agreement announced today, the biggest of its kind to cover multiple countries, is a sign of the urgency to save money and also of the success of flat-rate data packages in stimulating demand for Internet access on the go.

The deal covers Germany, Spain, Ireland and Britain and may be extended to the Czech Republic, the two companies said. They will share sites, equipment including masts, and power supply, but will keep their own radio equipment and vendors.

"It's a real transformational deal," Michel Combes, chief executive of Vodafone Europe, told journalists on a conference call. Matthew Key, his counterpart at Telefonica, said: "The current economic situation was a catalyst."

Vodafone had previously had network-sharing agreements with France Telecom's Orange in Britain and Spain.

Combes said he did not foresee any regulatory issues because it was a passive network-sharing deal, meaning they will not share active components used to process and transmit signals.

He said the two companies would present details of the deal, which vary slightly from country to country, to regulators in each country concerned.

Telefonica's Key said: "We will still compete on a retail business in terms of services for customers."

"The impact in 2009 will be relatively limited... Benefits will start to come through post-2009 in a significant manner," he added.

Combes said the deal would have no effect on guidance Vodafone has given, but would support its targets for capital expenditure as a proportion of sales.

Shares in Vodafone rose 0.7% to 120.75 pence, in line with the European telecoms index, after the widely expected deal was confirmed. Telefonica shares rose 1.2% to 14.97 euros. France Telecom rose 0.6% to 17.18 euros.

"We view this as positive for Vodafone and Telefonica," UBS said, noting however that the companies provided few details on the value of savings.

The two companies said they were also studying further cost savings in other related areas.

The deal covers about 64 million Telefonica customers and nearly 90 million Vodafone customers.