Vodafone and O2 to save 'hundreds of millions of pounds' by sharing networks

The mobile rivals O2 and Vodafone have announced far-reaching plans to share their phone networks as they look to cut costs and fight back against market-leader EverythingEverywhere.

O2 and Vodafone will unite to create one national grid of 18,500 masts and sites which should boost mobile signal strength for customers – particularly indoors and in "not-spots" in rural areas.

The mobile operators, respectively the second and third biggest in the UK, said they wanted to collaborate because booming smartphone usage is putting pressure on the networks.

In a further move to pool their resources, the two companies will split coverage of London and the UK.

O2 will manage the East, including north London, plus Northern Ireland and most of Scotland. Vodafone will cover the West, plus south London, and Wales.

Vodafone UK's chief executive Guy Laurence and O2's chief executive Ronan Dunne said there would be cost-savings but would not give any financial details. However, 2,500 mobile masts should be decommissioned out of the pair's existing 21,000. It should mean Vodafone and O2 each get access to an extra 40 per cent in the number of masts. Analysts suggested the savings could run into hundreds of millions of pounds.

Mr Dunne said: "While it absolutely means that we deploy more cost-effectively, that's not the focus. It's about delivering a better service to customers." He added that it made sense to share resources which are mere utilities as operators focus on innovation.

O2, owned by Spanish telecom giant Telefonica, and Vodafone are keen to launch their 50-50 joint venture as soon as possible because it would benefit customers who use existing 2G and 3G spectrum. But the companies said the main benefit would come with the advent of super-fast 4G spectrum, because they would be able to roll it out across the UK faster.

Messrs Dunne and Laurence insisted the tie-up was not driven primarily by the rise of EverythingEverywhere (EE), the UK parent company of T-Mobile and Orange, which merged in 2010. "Its timing is relevant to 4G but not relevant to other operators," Mr Dunne said. EE said it expected the regulator Ofcom to "carefully review" its rivals' deal.

Ofcom is not set to hold its much-delayed auction of 4G spectrum until later this year or early 2013. But the Vodafone-O2 tie-up could allow them to move into 4G more quickly and challenge EE, which is set to launch its own 4G service on some of its existing spectrum. O2 and Vodafone have had a limited partnership, called Cornerstone, since 2009 but this new alliance goes much further. The two companies stressed that they will remain in competition with each other. They will not share spectrum, and customer data will be kept entirely separate.

A Vodafone spokesman declined to say precisely how UK coverage will be split, citing commercial reasons.