Market Insight

Telefonica and Yoigo increase cooperation

August 01, 2013

James Allison James Allison Principal Analyst, Consumer Devices, IHS Markit

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Telefónica and Yoigo plan to increase their cooperation across the broadband, mobile, and mutliplay sectors. In the mobile sector, Yoigo's national 2G and 3G roaming access to Telefónica's network has been extended to 2016. Yoigo will allow Telefónica to access its LTE network with Telefónica contracted to provide connectivity between sites. Telefónica and Yoigo have signed a contract with abertis to sell a minimum of 4,227 mobile towers for EUR385 million. In the mutliplay sector Yoigo will use Telefónica's fixed-voice and broadband services to provision triple-play packages of fixed-voice, broadband, and mobile.

For Telefónica lowering costs and lowering debts dominate the contract. Telefónica's overriding objective for 2013 is to continue to reduce its debt, having reduced its debt by EUR10 billion in in the twelve months to June 2013. The sale of sites provides both a one-off benefit initially while lowering operating costs in the longer-term. The site divestment builds upon 1,000 sites that Telefónica sold to abertis in 2012.

Telefónica's rationale for gaining access to Yoigo's LTE network is that the continued pressure on Telefónica to lower costs and debts is impacting on its ability to deploy its own LTE network. With an uncertain launch date for LTE Telefónica has looked to Yoigo for support, with the main objective of not falling behind its rivals - Orange, Vodafone, and Yoigo - which all have commercial LTE networks following a flurry of launches at the end of the second quarter.

For Yoigo the deal provides three major benefits. Like Telefónica the tower sale and lease back gives Yoigo greater flexibility in its cost structure. The national roaming extension and backhaul were necessary deals from an operational perspective, with Yoigo still lacking national coverage following its 2006 launch. However, the most important aspect of the agreement with Telefónica is the ability to launch multiplay services using Telefónica's fixed-line network.

The multiplay sector in Spain has been heating up since Telefónica's successful launch of its Fusión service. Telefónica's including fixed-voice, broadband, mobile, and TV services under one subscription has grown to 2.19 million customers. The launch of Fusión has seen similar offers with Vodafone's Intergral product and Orange's Canguro. With its three larger rivals offering multiplay packages including discounts, Yoigo was under pressure to at least match, however, with no fixed-line market presence and little desire from parent company TeliaSonera to acquire a cable or fixed-line player Yoigo had little option but to continue to focus on the lower-end of the mobile market. Yoigo's triple-play service will allow it to better compete with the larger mobile operators, however its package will be missing TV services, a problem also facing Vodafone.

The network-sharing aspect of the deal is a factor that operators are increasingly looking at to reduce costs. To reduce fibre deployment costs Telefónica, Vodafone, and Orange recently agreed to share networks in areas where one of the group already had FTTP deployed. Should a building or area already be covered with FTTP by one of the cartel, other operators are able to access the network for a one-off fee that covers access for 20-years. IHS expects deals of this nature to become more prevalent due to it being a more cost-effective method of network deployment.

Geography
Spain
Organization
Telefonica Yoigo
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