The future of T-Mobile looks Orange

Davey Winder
Tuesday, 08 September 2009 18:15

IT Industry - Market

T-Mobile is one of the largest mobile network operators on the planet, and now it looks like getting a little bigger courtesy of France Telecom and Orange.

With some 148 million customers worldwide, you might think that T-Mobile was sitting pretty. Yet it has been common knowledge for some time now that, as far as T-Mobile UK was concerned, the business which pretty much pioneered mobile Internet access for Brits was up for grabs.

And now France Telecom (the Orange network operator parent company) has confirmed that it is doing the grabbing, with the announcement that it is entering into exclusive negotiations with Deutsche Telekom (the T-Mobile parent company) in order to merge T-Mobile UK and Orange UK and create a new 50:50 joint venture.

This will no doubt cause something of a ripple in the mobile pond as far as the British market is concerned, not least as such a venture will immediately become the UK's leading network operator with some 37% share of subscribers, or around 28.4 million if you prefer hard numbers.

France Telecom is keen to point out that the new, and as yet to be named, combined operator outfit will bring substantial benefits to consumers within the UK. It points in the direction of expanded network coverage as well as enhanced indoor and outdoor network quality for both 2G and 3G services.

There is also talk of improving on customer services provision through a larger retail network and online operation. Let's hope it improves the customer data protection as well, given some of the security howlers in the past.

It will also generate what the press release refers to as "estimated synergies with a net present value in excess of €4.0 billion" which is nice. And that is important, considering there has been talk of a mobile market recession for the next five years and the collapse of the mid-tier mobile phone market.
 
"By combining our operations in the UK, we anticipate the long-awaited consolidation in one of Europe’s most competitive markets, thereby creating a well positioned player" says Gervais Pellissier, CFO of France Telecom. "This will reinforce fair competition and will provide strong benefits for our customers through improved coverage, quality of service and an enhanced capacity to develop new services and technologies" Pellissier concludes.

Timotheus Höttges, CFO of Deutsche Telekom, is equally upbeat. "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." he insists.

Although it must be stressed that the deal is still in the negotiating stages, albeit on an exclusive basis, I am led to understand that in order to create the joint venture Deutsche Telekom would contribute T-Mobile UK on a cash-free, debt-free basis, including T-Mobile UK’s 50 percent holding in its 3G network joint venture with Hutchison and gross tax losses carried forward of at least £1.5 billion.

France Telecom, meanwhile, would contribute the whole of Orange UK including £1.25 billion of intra-group net debt in order to equalize the value of the contributions to the joint venture. Immediately after closing Deutsche Telekom would grant a £625 million shareholder loan to the joint venture, which would be used to simultaneously reimburse £625 million to France Telecom.

The T-Mobile UK and Orange UK brands would be maintained separately for some 18 months after completion of the transaction, and during that period management would review branding alternatives for the joint venture and will develop a new branding strategy recommendation for shareholder approval.

My money is on either Orange Tea or T-MobOrange. Or maybe not...