Orange and T-Mobile hook-up may be faulty connection

8th Sep 2009 15:12

BT used to run an advert in which actor Bob Hoskins proclaimed 'it's good to talk,' and it's a sentiment with which BT's European rivals seem to concur based on this week's announcements of closer ties in the mobile phone market.Spanish firm Telefonica announced plans on Monday to strengthen its ties with Chinese mobile group China Unicom while today Deutsche Telekom and France Telecom have reportedly agreed to merge their UK units T-Mobile UK and Orange UK in a 50:50 joint venture company.Assuming the deal gets waved through by the regulatory authorities it should bring to an end speculation about the future of Deutsche Telecom's T-Mobile UK division which has had a 'for sale' sign hung over it for the last few months.However, it is by no means certain that the deal will get the green light. The merger of T-Mobile and Orange in the UK will give the combined entity a 37% share of the fiercely competitive UK market, catapulting it ahead of Telefonica's O2 network, which has a 27% market share, and Vodafone, which controls about a quarter of the UK market. Reports suggest that the companies will seek to circumvent competition concerns by having the Orange and T-Mobile brands retain separate entities, while infrastructure and back office functions are shared. Orange employs 12,500 people in the UK while T-Mobile employs 6,500 people. Industry analysts have speculated that the merger could produce annualised cost savings of between £600m and £800m. T-Mobile, formerly the One2One network, was bought by Deutsche Telekom from Cable & Wireless in 1999 for £8.4bn, a price which, in retrospect, looks to have been well over the odds. It probably explains why Deutsche Telekom reportedly rejected a combined bid for its UK unit from Telefonica and Vodafone of around £3.5bn. The company has already written the value of its T-Mobile investment down by £1.6bn and accepting a sub-£4bn bid would have entailed further big write-downs.Mobile phone companies in the UK have struggled to make money from 3G services having paid, on average, £4.8bn per 3G licence, prompting the major players to share 3G infrastructure: T-Mobile has an infrastructure sharing deal with 3, the runt of the UK mobile phone company litter, while Orange has an agreement to share 3G infrastructure with Vodafone. As well as untangling or renegotiating the infrastructure sharing agreements with competitors, a merged Orange/T-Mobile UK operation would have to sort out the rebadged services the companies currently offer to virtual operators such as Virgin and IKEA.