T-Mobile and Orange move to upset UK status quo

Emeka Obiodu and Steven Hartley, Ovum
09 Sep 2009

UK mobile network operators T-Mobile and Orange have announced exclusive negotiations to combine their UK operations into a 50:50 joint venture. Based on December 2008 figures, the combined entity would have 28 million subscribers and 37% market share.

The first thing to note about yesterday’s announcement is that it is for exclusive negotiations. The deal is unlikely to be signed until the end of October, with completion expected in the first half of next year.

Furthermore, on a briefing call yesterday both parties were keen to stress that the two brands would operate separately for a further 18 months, with a new brand not expected to launch until 2012 (maybe not the best idea when the Olympics come to London and global branding efforts to thousands of roamers are undermined). Therefore, there is still a long way to go and in the short term the deal will change very little.

However, assuming the deal goes through without a hitch, it does realign the UK competitive landscape. To date the two separate operators have struggled to close the gap on Vodafone and O2. 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 £620 million ($1.02 billion) by 2014, thereby improving profitability immensely.

It is important to remember too that Orange’s fixed broadband assets are also included in the deal, so the combination would enable T-Mobile customers to receive integrated offerings. This should not be overstated; for T-Mobile the lack of a fixed strategy was leaving it somewhat exposed to future trends in the UK.

The T-Mobile/Orange merger sets the stage for a total transformation of the UK mobile market and poses the question of the response from Vodafone, O2 and 3. Unsurprisingly, 3 will be the most affected as the merger cuts it adrift in the market. With a market share of less than 6% it would become too small to compete realistically and would have to reconsider its presence in the UK, either by becoming an MVNO or exiting the market.

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