UK mega merger: T-Mobile and Orange join forces

Natalie Apostolou
09 Sep 2009

Deutsche Telekom and France Telecom have confirmed plans to merge their UK mobile operations, combining Orange and T-Mobile to become the biggest player in the market.

The as-yet-unnamed JV will have a combined subscriber base of 28.4 million, or around 37% of the market, heading current leader Telefonica's O2 which has 27%.

The combined business will generate 2008 revenues of approximately €9.4 billion ($13.6 billion) and ebitda of €2.1 billion.

The merger and integration of the two assets is estimated to fetch €4 billion in cost savings, which will be achieved via consolidating offices, decommissioning mobile masts, rationalizing retail stores and removing duplicated jobs in areas such as call centers. Orange employs 13,000 staff and T-Mobile 6,500.

The merger sets the stage for a “total transformation” of the UK mobile market, said research firm Ovum. It begged a response from the remaining carriers, and in particular puts pressure on Hutchison Whampoa’s 3, which has just 6% of the market.

In a joint statement, the carriers said the merged carrier would be led by Orange UK's Tom Alexander, while T-Mobile chief Richard Moat will take on the COO role. The JV’s board will feature balanced representation from both carriers.

The T-Mobile and Orange brands will be maintained separately for 18 months after close of the deal. The senior management team will use that time to review alternatives and develop a new brand strategy for shareholder approval.

Under the terms of the deal Deutsche Telekom will tip in T-Mobile UK on a cash-free, debt-free basis, including T-Mobile’s 50% holding in 3G network joint venture with Hutchison and gross tax losses carried forward of at least €1.7 billion.

France Telecom will contribute the whole of Orange UK including €1.42 billion of intra-group net debt.

As part of the deal, Deutsche Telekom and France Telecom will each loan the venture €712 million, launching with debt of €1.42 billion.

“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, which is undoubtedly one of the toughest and most competitive, we are giving T-Mobile UK a clear and strong future,” said Deutsche Telekom CFO Timotheus Höttges.

The high-profile UK mobile market is one of the world’s most crowded, contested by five global operators. 02 leads the market, followed by Vodafone, Orange, T-Mobile and 3.

But Virgin Mobile’s MVNO customers, who are currently hosted on the T-Mobile network, may well be shifted to another network to allay fears of market dominance, Ovum said.

The UK operators have also struck a series of network sharing deals: T-Mobile UK with 3, Vodafone and O2, and Orange with Vodafone.

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