Vodafone and Hutchison to Merge Networks in Effort to Lower Costs

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Vodafone and Hutchison to Merge Networks in Effort to Lower Costs

British Telecom operator Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) and Hong Kong-based Hutchison Whampoa Limited (HKG:0013) are close to signing an agreement to merge their network infrastructure in Ireland, two people familiar with the discussions told Bloomberg. Both telecom giants plan to keep their separate frequencies and brands in the Irish market.

Vodafone Group Plc  signed a similar deal with O2 unit of Telefonica S.A. (NYSE:TEF) last month. The companies were trying to lower costs before deploying the new high-speed networks. O2 also entered a network sharing partnership with Eircom Group in Ireland.

“It’s a smart move to initiate savings while having a high probability of receiving the green light from regulators,” said Vincent Maulay, an analyst at Oddo & Cie. in Paris. He added that the agreement can help Vodafone reduce operating costs by over 10 percent.

The telecom operators across Europe are increasingly relying on network sharing to cut costs and offer faster downloads after the regulators halted some merger and acquisition attempts. After the 2008 economic crisis, Vodafone has sold minority stakes in other countries to focus on its main markets – Europe, India and USA. Vodafone Plc has come under pressure in India recently. The Indian Government claims that Vodafone Plc owes the country up to $3.7 billion. The tax is related to a  2007 purchase of a majority stake in Hutchison Essar by Vodafone. Hutchison Essar was formerly owned by Hutchison Whampoa Limited.

Research firm Idate estimates that an average European telecom firm has to spend 2 billion euros to upgrade their existing network to 4G LTE. In 2010, France Telecom SA (NYSE:FTE) merged its Orange network in Britain with T-mobile and created “Everything Everywhere.” The move is expected to save the companies 4 billion euros in network, marketing and administrative costs by 2014. Telefonica S.A. also has similar arrangements in various European countries, including one with Vodafone in Spain and with T-mobile in Czech Republic.

Vodafone closed Tuesday’s trading at $28.24, down $0.05 or 0.16 percent. Hutchison Whampoa closed trading at $17.63, up $0.28 or 1.61 percent.

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