T-Mobile, Orange Partnership Looks to Dominate U.K. Mobile Market

Deutsche Telekom and France Telecom announced that they’ll be combining their respective properties — T-Mobile U.K. and Orange U.K. — into a fifty-fifty venture that will create the United Kingdom’s leading mobile operator.
 
The combined mobile subscriber base of the Orange and T-Mobile venture will be approximately 28.4 million strong and represent approximately 37 percent of the U.K.’s mobile subscriber base.
 
The new relationship is expected to result in expanded network coverage, better indoor and outdoor network quality for 2G and 3G services, cost savings for each, as they eliminate duplicate efforts, and a heightened ability for each to compete against the markets’ other major mobile operators, namely O2 and Vodafone.
 
“By combining our operations in the U.K., we anticipate the long-awaited consolidation in one of Europe’s most competitive markets, thereby creating a well-positioned player,” France Telecom CFO Gervais Pellissier wrote in a joint statement.  
 
Timotheus Hottges, CFO of Deutsche Telekom, remarked in the joint statement, “We will become market leader — our customers will benefit in many ways, for example from the best mobile broadband offer in Britain. In the second-biggest market in Europe […] we are giving T-Mobile U.K. a clear and strong future.”
 
Ovum analysts Emeka Obiodu and Steven Hartley agree that, given the regulators impose the necessary safeguards, the deal is a fine one for consumers, though more importantly a smart and necessary one for the carriers.
 
“Competition is good for consumers, but with five major players the U.K. operators were competing themselves to death and badly needed to consolidate,” the analysts wrote in a Sept. 8 research note. “The U.K.’s operators face many challenges, including recouping the billions invested in 3G; expanding and upgrading network coverage; and getting ready for 4G — and all of this without seeking any government subsidy. Therefore, something needed to be done.”
 
The merger will have a management team equally represented by each side and led by current Orange U.K. CEO Tom Alexander, as CEO, and current T-Mobile U.K. CEO Richard Moat as COO. The merged entity will maintain separate brand identities for 18 months after the completion of the transaction, during which time branding decisions will be made.
 
The analysts wonder at the wisdom of not launching the new brand until 2012 — “maybe not the best idea when the Olympics come to London and global branding efforts to thousands of roamers are undermined” — but agree that, given that everything goes through smoothly, the deal will change the competitive landscape.
 
“The combined entity would not only become the clear market leader, but the synergies (through network integration, marketing and distribution, and other efficiencies) are promised to be [$1.02 billion] by 2014, thereby improving profitability immensely,” according to the two Ovum analysts.
 
T-Mobile and its customers will see the benefits of Orange’s fixed broadband assets. As for Vodafone, the merger will bump it to third position, a thing the analysts suggest will likely hurt its ego and start it looking at a deal with BT. O2, though knocked from its top position, is expected to be un-phased by the merger and continue to compete effectively.
 
The T-Mobile U.K. and Orange U.K. merger, according to Deutsche Telekom and France Telecom, is expected to generate synergies with a net present value in excess of approximately $5.7 billion.