Bloomberg News

Vodafone Snubbed by Competitors on $40 Billion Network Costs

February 27, 2012

Vodafone Group Plc Chief Executive Officer Vittorio Colao speaks during a keynote speech on the opening day of the Mobile World Congress in Barcelona. Photographer: Denis Doyle/Bloomberg

Vodafone Group Plc Chief Executive Officer Vittorio Colao speaks during a keynote speech on the opening day of the Mobile World Congress in Barcelona. Photographer: Denis Doyle/Bloomberg

Vodafone Group Plc (VOD) Chief Executive Officer Vittorio Colao asked rival European phone operators to share the 30 billion euros ($40 billion) in investments needed for faster networks as regulators balk at consolidation.

“As Vodafone we have offered to co-invest in these networks, we have offered it to the most important European players,” Colao said in Barcelona at the Mobile World Congress today. “So far, we have not succeeded in convincing them that this is a good idea but we are keen on doing it.”

The need to build new networks for video and gaming services and the unraveling of takeovers and mergers in the past two months, including a sale of Deutsche Telekom AG (DTE)’s T-Mobile USA and a combination of Vodafone’s Greek assets with a rival, shows the need for European carriers to find other ways to boost profitability. Colao said the solution is to compete on an open, shared infrastructure.

“If times are tough and there is not enough money, we should probably go into a co-investment situation and have open co-invested infrastructure,” he said. The industry will need to invest about 30 billion euros for new networks based on long- term evolution technology that allows much faster data downloads, he said.

Resistance

Vodafone, the world’s largest mobile-phone operator, also operates fixed-line networks in three of its largest European markets, Italy, Spain and Germany. “There is still a resistance to the concept of open networks, not in mobile but in fixed networks,” Colao said, referring to these three countries.

If other major European operators are not willing to team up with Vodafone in order to protect their dominance in their home markets, Colao may need to form alliances with smaller local operators.

In Italy, Vodafone and local operators FastWeb SpA (FWB) and Wind Telecomunicazioni SpA said in May 2010 they would invest 2.5 billion euros in a network to serve about 10 million people in Italy’s 15 largest cities within five years. Telecom Italia, Italy’s biggest phone company, decided to focus on the development of its own network.

This month, Vodafone abandoned an attempt to merge its Greek unit with rival Wind Hellas after facing European Union regulatory opposition. A successful merger would have allowed Vodafone to reduce costs and better compete in the country with Hellenic Telecommunications Organization SA, or OTE, which is controlled by Deutsche Telekom.

Greece Deal

“The country will not support three full networks,” Colao said today. Vodafone said Feb. 9 it is in talks with Wind Hellas about sharing networks in Greece after it called off the proposed merger.

After years of sliding prices for wireless service in Europe, operators now have a shot at halting that trend by getting customers hooked on faster mobile technology. Handset manufacturers such as ZTE Corp. (000063) use the Mobile World Congress in Barcelona to show devices capable of handling using the LTE technology rolled out in the U.S. about a year ago, starting with Germany, Europe’s biggest wireless market.

LTE offers higher up- and download speeds and latency, or response time, that’s three times quicker on average than previous technology. Vodafone, which will be first to the German market on March 1 with HTC Corp.’s (2489) Velocity LTE smartphone, plans to add 10 euros and extra data volume to its top two tariffs.

When European operators, including Deutsche Telekom (DTE) and Vodafone, spent about 50 billion euros on licenses in 2000 for LTE predecessor UMTS, profits were years away as the networks weren’t opened to the public until 2004 and high-bandwidth applications weren’t widely consumed. This time, phone companies are hoping to recoup their investments much sooner.

German operators, including Royal KPN NV’s (KPN) E-Plus division, poured almost 4.4 billion euros into mobile-phone frequencies in 2010, with some spectrum converted from analogue television use.

Vodafone was little changed in London trading at 4:21 p.m. The shares have dropped 4 percent this year.

To contact the reporter on this story: Jonathan Browning in Barcelona via jbrowning9@bloomberg.net;

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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