Why would Vodafone want to buy T-Mobile‾

Emeka Obiodu/Ovum
03 Jul 2009
00:00

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The news is awash yet again with rumors of another acquisition of T-Mobile UK \'s business. This time, Vodafone is reported to be interested. However, while a takeover will boost Vodafone\'s position in the UK market, completing the deal will be a nightmare. Ultimately, consumers will be neither worse nor better off.

Vodafone will improve its market position

A takeover of T-Mobile will catapult Vodafone back to the top of the UK mobile market, as the addition of T-Mobile\'s customer base will give Vodafone a market share of about 40% - much higher than O2\'s 27% market share.

Such market dominance should give Vodafone increased strategic benefits. It will bring economies of scale, an opportunity to share network resources, and a greater footprint to roll out new products and services. The increased revenue potential is fairly obvious, and that may be why the financial markets seem to be excited about a potential deal.

Crucially too, and perhaps more egotistically, the UK is Vodafone\'s domestic market and, in the absence of BT on the mobile scene, Vodafone is the de-facto incumbent mobile operator. Given that incumbents elsewhere lead their markets, it would be satisfying for Vodafone to lead the UK mobile market.

Vodafone plus T-Mobile is not a perfect fit

Despite the potential strategic advantages, this is not a case of a square peg in a square hole. Firstly, why should two seemingly underperforming businesses merge‾ In 3Q08, 4Q08 and 2Q09, Vodafone and T-Mobile suffered revenue declines, whereas O2 and Orange grew their revenues. Would two businesses with declining revenues suddenly turn a corner‾

In addition, while Vodafone is doing quite well in adding new customers, T-Mobile is losing customers. It has lost customers on a year-on-year basis in the three quarters since 3Q08. So can Vodafone be certain that it will have T-Mobile\'s entire customer base when a deal is completed‾ Or will it pay for a vanishing customer base‾

Then there is the network-sharing issue. T-Mobile has a deal with 3, whereas Vodafone has a deal with O2. How will these unravel‾ And will these present an "

Emeka Obiodu/Ovum

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