BT and Deutsche Telekom in 3G deal

British Telecom has struck a deal with Germany's Deutsche Telekom to co-operate on the next generation of mobile phone services.

We are going to reduce the number of masts we would have had in the UK by 10,000

Harris Jones, managing director, T-Mobile

By sharing masts and infrastructure, Deutsche Telekom, which owns One2One, and BT hope to cut the a multi-billion pound bill both face to build 3G networks in Britain and Germany.

The debt-laden British company said it could save up to 30% on the capital cost of building the 3G networks, over 10 years, and make further substantial savings on operational costs.

The two former state monopolies are the first operators to announce such a deal in two of the largest mobile markets in western Europe, they said in a statement.

BT shares were up 7p at 432p by mid-day on Tuesday, following news of the deal.

Speeding-up delivery

One2One said the deal would help it save about 30% of the 9bn euros (£5.5bn) total it had earmarked for building a 3G network.

We are thrilled that we can build our (3G) network quicker and better and cheaper, in Germany and the UK

Peter Erskine, chief executive, BT Wireless

A spokesman for T-Mobile said it had planned to spend 5bn euros on its network in Germany and a further 4bn for outside the country.

T-Mobile managing director Harris Jones said: "We will be able to bring 3G to our customers more quickly.

"Secondly, we are going to do it much more cost-effectively. Thirdly we are going to reduce the number of masts we would have had in the UK by 10,000 or so."

He said One2One's roll-out of 3G would happen in early 2003.

'Pioneering agreement'

Peter Erskine, chief executive officer of BT Wireless, said: "This is a pioneering agreement.

"We are the first to drive the intelligently planned creation of future mobile communications in two of the biggest mobile markets in western Europe."

It is in everybody's interests to get the services out quickly and reduce costs

John Moroney, telecoms analyst

Mr Erskine told BBC News 24 that BT could save 2bn euros (£1.2bn) over 10 years and the deal would also enable the 3G network to be rolled-out faster, with less environmental impact.

He denied that BT had been forced into seeking an alliance because of its alleged £30bn debt mountain.

"If you had zero debt it is still the right thing to do.

"We have a strong partner. It is the first multinational deal and we are thrilled that we can build our network quicker and better and cheaper, in Germany and the UK," he said.

Kai Uwe Ricke, chief executive officer of T-Mobile International, said: "This partnership is the most far-reaching co-operation agreed to date in Europe."

More alliances

Telecoms analyst John Moroney said the BT/Deutsche Telekom deal could pave the way for similar alliances.

"At this stage in the market they (the telecom companies) want to get the services out quickly so they can start migrating away from extending digital services to 3G," he told the BBC.

"So it is in everybody's interests to get the services out quickly and reduce costs."

But closer co-operation between Europe's telecom companies would not lead to mergers at this stage, he added.

'Bilateral roaming'

BT and Deutsche Telekom have said they will co-operate on the initial construction of 3G infrastructure as well as "bilateral roaming" on their 3G networks.

This means individual customers will have their calls routed through masts belonging to either of the two companies.

In addition, One2One customers will have the opportunity to roam on BT Cellnet's 2G and 2.5G networks in selected areas of the UK over the next two years, they added.

This will increase coverage for One2One customers, the company claims.

Regulatory clearance

BT said it sees potential to expand the network availability of next generation mobile multimedia and data services more quickly and reduce required number of new masts and base stations.

The deal has still to be cleared by regulators in the UK and Germany, although the German authorities have already cleared the way for such a deal.

The UK regulator Oftel said it would need to see more details.

A spokesman for Oftel said the regulator would want to be satisfied that the deal would bring benefits to customers and would not hinder competition.

Definitive agreements

In the UK, BT Cellnet has signed a Memorandum of Understanding with One2One, a wholly-owned subsidiary of T-Mobile, and in Germany T-Mobil has signed a similar agreement with Viag Interkom, which is wholly-owned by BT Wireless, the statement said.

It is expected that definitive agreements will be signed at the end of the summer after detailed planning activities have been concluded.

The agreement foresees a co-ordinated roll-out of 3G infrastructure and sharing of new and existing base stations, including sites, masts and antennas, in major urban areas.

BT announced on 10 May that it intends to de-merge BT Wireless before the end of this year.