Deutsche Telekom and France Telecom have announced plans to merge their UK operations, branded as T-Mobile and Orange respectively, to form the largest mobile phone operator, pushing current market leader O2, owned by Telefonica, from the top.
According to both companies, the deal would generate estimated cost savings of over €4 billion, or US$5.7 million, and both companies will run as separate brands for 18 months while a review on creating alternative brands and strategies.
The internal structure will see the board being made up equally of representatives of both companies, and the current CEO of Orange UK, Tom Alexander, to be the new CEO of the yet-unnamed company. Current CEO of T-Mobile in the UK, Richard Moat, will become the chief operating officer.
“We will become market leader – our customers will benefit in many ways, for example from the best mobile broadband offer in Britain,” said CFO for Deutsche Telekom, Timotheus Hottges.
“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. And, with our partnership, we have taken the most value enhancing strategy for Deutsche Telekom and its shareholders.”
Gervais Pellissier, the CFO for France Telecom, added “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."
“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. Our shareholders will benefit from higher profitability and an immediate cash flow per share accretion without impacting the overall indebtedness of the parent companies.”
Because of the major shake up of the industry, the UK Office of Fair Trade and possibly the European Commission will need to have a look at the deal before it can get the green light to go ahead. The Office of Fair Trade is currently tasked to investigate any deal that would result in a 25 percent or more of an industry. Also, the deal has to pass both the Supervisory Board of Deutsche Telekom and the Board of Directors of France Telecom; and both parties shareholders.
The industry is tightly battled between four companies, with O2 and Vodafone taking the first and second spot with 27.1 percent and 23.6 percent of the market in terms of customers respectively, according to the research firm Gartner. O2 and Vodafone are said to be looking at acquisitions, like 3 UK, owned by Hong Kong-based Hutchison Whampoa, to build up market share.
Vodafone and Hutchison Whampoa already have merged their Australian operations after being approved by the ACCC and the European Commission. Both their brands remain, with a review on both brands’ effectiveness as the company is looking to use one of the two brands.