Vodafone offers to co-build European fast networks

BARCELONA Mon Feb 27, 2012 11:58pm IST

A customer walks past the Vodafone logo in a shopping mall in Prague February 7, 2012. REUTERS/David W Cerny

A customer walks past the Vodafone logo in a shopping mall in Prague February 7, 2012.

Credit: Reuters/David W Cerny

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BARCELONA (Reuters) - Mobile operator Vodafone has offered to join forces with rival firms to share the 30 billion euro bill to build out new superfast fibre networks in Europe, in a sign of the increasing demands being placed on operators.

Chief executive Vittorio Colao said he had approached rivals in Germany, Spain and Italy to consider co-investing in new networks to meet the insatiable demand for faster speeds at a time when consumers are not willing to pay a huge premium.

"So far, we have not succeeded in convincing them that this is a good idea but we are keen on doing it," Colao said on Monday at the Mobile World Congress in Barcelona.

"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.

European operators such as Vodafone and Telecom Italia used the first day of the annual industry gathering to warn regulators that they would struggle to invest in networks if they did not see some reduction in the regulatory burden being placed on their business models.

At the heart of the problem is the continued reduction in so called mobile termination rates, a fee operators charge each other to connect calls, which has been slowly eroded by the European Commission.

Fees for making calls when abroad are also coming down while operators are having to bid aggressively in spectrum auctions to meet the demand from consumers for fast networks to support video and gaming on smartphones, laptops and tablets.

Using Britain as an example, Colao said earning margins for the operators were around 18-24 percent.

"Take out investment, take out taxes and a bit of working capital and there is not much left. With 200 percent growth in traffic from smartphones, sooner or later we will hit an investment issue. Is the market profitable enough to continue to reinvest?"

Many of Europe's largest operators have launched mobile network sharing deals in recent years but Colao said the suggestion of sharing the build-out of a fixed network appeared to be a step too far for his rivals.

The European Commission and individual governments are keen for operators to build out faster networks as they believe it can boost economic productivity.

Colao said he estimated the European industry would need to spend around 30 billion euros to build out new LTE networks to give operators the opportunity to charge higher prices for consumers.

Such co-investment deals have already been put in place in France. In Italy and Spain, however, the incumbents are for now focusing on paying down debt.

Vodafone mostly takes fixed-line products in Italy and Spain from the incumbents on a wholesale basis.

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