BT to share 3G roll-out costs with Deutsche Telecom

Outlook

British Telecom and Deutsche Telekom have agreed to work together building their third-generation mobile phone networks in the UK and Germany, a move which will cut costs by billions of pounds.

Peter Erskine, the chief executive of BT's mobile phone division, BT Wireless, yesterday said the collaboration will save his company 2bn euros (£1.2bn) over 10 years, roughly 30 per cent of its original estimate for building the network. Deutsche Telekom, which owns the One2One network in Britain and T-Mobile in Germany, expects a similar level of savings.

Analysts welcomed the agreement, which is not yet binding, and said it was important for mobile phone operators to lower their costs because they were struggling to control their debts. BT, which plans to demerge BT Wireless by the end of the year, racked up a £28bn debt, spending almost £10bn acquiring 3G licences last year.

BT and Deutsche believe co-operation will enable them to expand their networks more quickly and produce environmental benefits through sharing base station sites, masts and antennas in urban areas. BT Wireless is also discussing plans to allow One2One access to its existing mobile networks in the UK. BT Wireless, owner of Viag Interkom, already has similar access to T-Mobile's network in Germany.

Analysts believe other operators will join forces, and several are believed to be planning to share network development. The Dutch operator KPN yesterday confirmed it was in talks with rivals. Vodafone said it supported the principle of co-operation. It is already working with Orange and Hutchison Whampoa to roll-out a 3G network in Sweden.

Mobile phone companies have been pushing for network sharing after the cost of buying 3G licences has left them under severe financial strain. They spent £52.2bn in Germany and the UK alone.

BT's collaboration with Deutsche comes only days after the German regulator relaxed rules to allow network sharing and a month after Oftel said it backed the principle. Mr Erskine said the two companies have sounded out both national regulators and the European Commission and hope to receive regulatory approval by the end of September. He believed that the plan was "consistent with all existing regulatory and competition obligations".

The European Commission is expected to scrutinise the deal closely, however, as its decision is likely to set a precedent that other mobile phone networks will follow.