The partnership will rival Everything Everywhere, which formed in March 2010 following the merger of Orange and T-Mobile in the UK.
The two companies plan to create two competing networks that will offer indoor 2G and 3G coverage across the UK by 2015. Telefónica UK and Vodafone UK claim the networks will deliver mobile coverage and mobile internet services to the vast majority of UK households.
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“This partnership is about working smarter as an industry, so that we can focus on what really matters to our customers," said Ronan Dunne, CEO of Telefónica UK.
"One physical grid, running independent networks, will mean greater efficiency, fewer site builds, broader coverage and, crucially, investment in innovation and better competition for the customer,” he added.
The partnership could also help the two companies deliver 4G mobile networking.
“If Vodafone and Telefónica had not also embraced sharing in this way, they would have been at a competitive disadvantage," said Jeremy Green, principal analyst at Ovum.
"As it was, they were able to build on and extend the relationship they already had through Cornerstone, their existing joint venture. This sets them up well for the 4G roll-out and will help them catch up on 2G and 3G roll-outs too,” he added.
Telefónica and Vodafone propose to jointly operate and manage a single network grid in the UK that will run two competing nationwide mobile internet and voice networks.
Both companies will retain complete control over their wireless spectrum, intelligent core networks and customer data. They will continue to actively compete with each other in all products and services enabled through the "intelligent" parts of their networks.
A new 50/50 joint venture company will be created through the consolidation of both Telefónica UK and Vodafone UK’s existing basic network infrastructure, including towers and masts, which will be transferred to the joint venture or decommissioned over time.
Under the proposals, both companies will have access to a single grid of 18,500 masts, representing more than a 40% increase in sites for each operator. The joint venture will also be responsible for building any new sites needed to extend coverage into rural and remote areas.
Duplicate sites will be decommissioned, which is expected to result in a more than 10% overall reduction in the total number of sites used by the two operators in the UK.