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Watch out Tesco Mobile: Vodafone, Sainsbury's want to eat your lunch

Ringing your granny can now earn you Nectar points, folks

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Sainsbury's, the “Premium Economy of supermarkets”, has launched a branded mobile virtual network operator service with Vodafone, offering the usual cross-branding and shelf space – and, of course, Nectar points.

The service will launch in a month or two, so we don't have critical factors like pricing or a detailed breakdown of their offering just yet. We do know that Sainsbury's and Vodafone will each own half the company (just as O2 owns half of Tesco Mobile) and that they're making the usual promises about how marvellous it will be.

There are around 70 mobile virtual network operators (MVNOs) in the UK, reselling services offered by existing operators to appeal to their own demographic. The really big ones can negotiate huge discounts by threatening to take their customers elsewhere (which is technically difficult, but not impossible), but those half-owned by a network operator have less negotiating power.

MVNOs vary widely in their integration with the network. Some just do a straight rebadge of existing services, while others reduce costs by maintaining their own servers and integrating with the parent network - though that saving comes with attendant risks.

GiffGaff is a particularly interesting example. Owned by O2, it launched in 2009 on the premise of keeping costs down by not subsidising handsets and relying on word of mouth for advertising. Five years later handset subsidies are on their way and the lure of TV advertising has proved irresistible, which goes to show why real mobile operators do so much of it.

But the world of virtual operators is getting much more complicated. Vodafone and O2, for example, now both rent 2G and 3G network infrastructure from Cornerstone, a company they jointly own which was set up for that express purpose. Three and EE have a similar deal with MBNL, though that only covers 3G infrastructure.

So in much of the UK there are now only two networks of masts (bearing in mind that Three has no 2G infrastructure at all), though those two networks carry radio networks operating in bands owned by four different companies. Frequency-sharing isn't happening yet, but it could soon.

Three and EE have discussed sharing 4G radio spectrum, given they both did quite poorly in the 4G auctions. EE reportedly walked away from those talks - unsurprising given it still owns the biggest slice of UK mobile allocation even if it's not in the bands it would prefer. For the moment it looks as though the UK will be getting four distinct 4G networks.

But network sharing is getting easier, so inevitably there will be more of it. This isn't a problem as long as competitive pressure keeps the prices down. Tesco has been offering bargain-basement mobiles for a decade or so, with some success, so it's no great surprise to see Sainsbury's is following suit. ®

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