T-Mobile close to juicy Orange hook-up

The £7bn merger will save money and create the UK's largest mobile phone company. But is it good news?

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Last Updated: 31 Aug 2010

The owners of Orange and T-Mobile said this morning that they’re planning to merge their UK businesses – a deal that would create the biggest player in the UK mobile phone industry, with a 37% share of what is one of Europe’s most competitive markets. A merger makes strategic sense for both sides – they’re currently trailing behind rivals and O2 and Vodafone, and a tie-up could apparently lead to cost savings of about £3.5bn, as well as offering the advantages of greater scale. On the other hand, with job cuts inevitable and competitive pressure likely to diminish, it’s not all glad tidings for the rest of us…

Orange owner France Telecom and T-Mobile owner Deutsche Telekom confirmed the merger plans this morning: the combined business will have revenues of nearly £8bn and serve over 28m customers in the UK. Some kind of deal for T-Mobile was inevitable – DT has been looking at options for offloading the business, which has been losing customers lately. But rather than an outright sale to O2 or Vodafone, the UK’s two biggest players, it’s opted for a 50-50 joint venture with third-placed Orange instead. (And if you’re wondering what the new company will be called, they’re apparently going to keep both brands going for 18 months while they think about it – our money’s on Orange, for now).

The two firms have been trumpeting the advantages of the deal this morning, as you’d expect. Their combined market share of 37% will be 10% higher than second-placed O2, so they’ll certainly be better equipped to compete than they were before (the industry has become such a numbers game these days that scale is all). They’ll also have wider coverage, while saving money by getting rid of duplicate mast sites – not to mention sharing stuff like back office functions and marketing budgets. All in all, this will apparently cut their combined costs by nearly £450m a year - which isn't a very exciting reason to merge, but is very much the order of the day at the moment. Orange UK boss Tom Alexander will take the helm, with T-Mobile UK boss Richard Moat as COO.

Of course the flipside of this is that lots of staff will be left high and dry – between them the two operators have got about 19,000 staff in the UK, and presumably this is going to be one of the biggest overhead costs they intend to reduce. There’s also the effect on competition to consider: having four operators in the market desperately trying to fight for customers has helped keep prices low. Now there’s only three, one of whom controls more than a third of the market, there’ll be less pressure on pricing.

Then again, since the UK mobile market is already pretty saturated, and the next couple of years are likely to be sluggish at best, it’s hard to see either of these two firms boosting revenues to any significant degree. So a merger (and its subsequent cost savings) might well be their only move if they want to steal a march on O2 and Vodafone...


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