3G Mobile Network Infrastructure sharing

The trend amongst European mobile companies for sharing network infrastructure continues with the announcement at the end of November that the Spanish Government plans to allow Telefonica Moviles SA and Vodafone Espana to share their 3G networks.

In Norway Tele 2 AB and Telia AB are in discussions to reach an agreement on network infrastructure sharing, similar to the agreement reached between the two companies in Sweden in January 2001. The Government of Norway has indicated that it may be willing to alter the country’s stringent licence terms in the face of growing industry doubts about the near term economic potential of 3G and allow operators to share a single network in the more remote parts of the country, while maintaining separate networks in Oslo.

In Sweden newcomers Orange Sverige, and Hi3G Access have both entered into a tri-partite agreement with incumbent operator Europolitan Vodafone to set up a joint venture company to build and share a 3G network to cover up to 70% of the population. Each operator will be an equal partner in the venture. They will continue to build their own networks in Stockholm, Gothenburg, Malmo and Karlskrona and will also compete for customers across the entire country. The network sharing agreement will allow each of the three operators to reduce the costs of building their networks and reduce the number of cell towers.

The German regulator Reg TP announced in June 2001 that it intended to interpret licence conditions to permit network co-operation and infrastructure sharing in the German market.

In the Netherlands the Dutch Telecommunications Act and the Dutch Competition Act allows Network operators to share infrastructure but the joint use of core networks and frequencies is not allowed.

Similarly, the French regulator ART has stated that it is in favour of Network Operators sharing infrastructure as long as they do not share frequencies. Operators can share passive sites and equipment such as antennas, base stations and radio network controllers, as long as they keep control of the key elements of the network that allow them to exploit independently the frequencies allocated to them. ART has also stated that geographic sharing is possible, but cannot be accounted for by an operator to fulfil its territory coverage requirements.

In the UK, provided that the rollout obligation contained in the 3G operators Wireless Telegraphy Act Licence (80 % of population coverage by 31 December 2007) is met there is nothing to prevent infrastructure sharing amongst 3G operators. In fact, Oftel issued a guidance note jointly with the DTI and Radiocommunications Agency in May 2001 which positively encouraged infrastructure sharing on environmental grounds. However the Radiocommunications Agency has recently stated that they would draw the line at Operators “pooling Spectrum (Further information is available upon request.)

Mm02 Plc’s UK business, BT Cellnet and Hutchison 3G have recently agreed commercial GSM (2G) Roaming terms. The agreement fulfils BT Cellnet’s PTO mobile GSM (2G) licence obligation to provide the new 3G market entrant with GSM Roaming. This will allow H3G to launch a full nationwide service before completing network infrastructure. Under the agreement H3G will have access to BT Cellnet’s 99% population coverage for GSM calls and text messaging. The agreement goes further than the licence obligation in that it also allows for roaming provision onto BT Cellnet’s GPRS (2.5G) service. The agreement will commence following the launch of Hutchinson’s 3G network, currently stated to be available in the second half of 2002.

Hutchinson 3G has concluded a similar GSM roaming and 3G site sharing agreement in the Italian market with Telecom Italia Mobile.

Had Hutchinson 3G been unable to reach a commercial agreement with any of the UK’s four existing GSM mobile operators, the Director General of Telecommunications could have imposed a national roaming agreement on either mm02 or Vodafone as part of their GSM licence conditions. Orange and One 2 One’s GSM licences do not contain such conditions.

Mm02has similarly announced that it intends to enter into agreements (currently non-binding) with One 2 One on infrastructure sharing on the rollout of their respective 3G networks and GSM Roaming subject to regulatory approval.

The advantages for operators in network infrastructure sharing are that costs associated with network rollout are reduced, i.e. not having to duplicate competing systems. They can bring their networks to the market sooner and provide greater geographic coverage and thus bring revenues on stream sooner.

There are also disadvantages to network infrastructure sharing, as an operator can risk losing control of their networks, in particular where a partner to any agreement may become insolvent.

Competition Issues

Network infrastructure sharing agreements may however be subject to regulatory approval on an individual basis under EC or National Competition Law.

Articles 81 and 82 of the EC Treaty respectively prohibit anti-competitive agreements and concerted practices (Art 81) and the abuse of a dominant position (Art 82).

In the UK such agreements are governed by the UK Chapter 1 competition prohibitions (Art 81) which prohibit agreements which have the object or effect of preventing, restricting or distorting competition and that may affect trade within the UK.

The UK Competition Act 1998 which came into force on 1 March 2000 grants powers to the DG of Telecommunications, exercisable concurrently with the DG of Fair Trading, for the enforcement of prohibitions against anti-competitive agreements in relation to “commercial activities connected with telecommunications. The Competition Act gives those regulators investigative powers, the power to impose interim measures and enforcement powers including the imposition of substantial financial penalties and prohibition orders.

Operators may ask Oftel for guidance or a decision under the Competition Act as to the compatibility of any infrastructure sharing agreement with the competition rules. They may also apply for an exemption if they apply for a decision. An exemption may be granted if the agreement satisfies the criteria set out in the Competition Act but may be subject to conditions imposed by the DG Telecommunications.

The European Commission can similarly grant an exemption if the conditions in Article 81(3) EC Treaty are met.

(More detailed information on the impact of EC and UK Competition Law on the Telecommunications Sector is available upon request.)

For information or advice on any of the above topics please contact David Roberts, Telecoms and Technology Team, CMS Cameron McKenna, on +44(0)20 7367 3000 or E-mail [email protected]