After months of speculation, the decision has finally been made. Deutsche Telekom announced this morning that its UK division, T-Mobile, will be merging with French-owned Orange. The merger will result in the largest mobile operator in the UK.
As of this morning, the two European companies are in talks to create a 50:50 operation in the UK. By combining their operations in England, they will create a network with a combined customer base of over 28 million, making it the largest network in England overnight.
Here’s how the % Operator share looks pre-merger:
1) O2 28%
2) Vodafone 25%
3) Orange 21.5%
4) T-Mobile 15%
And here’s how it will look post-merger:
1) T-Mobile/Orange 36.5%
2) O2 28%
3) Vodafone 25%
The operators expect this merger to create savings of up to 3.5 billion pounds sterling – that’s over €4 billion.
From the release:
Timotheus Höttges, CFO of Deutsche Telekom: “We will become the 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. And, with our partnership, we have taken the most value enhancing strategy for Deutsche Telekom and its shareholders.”
Gervais Pellissier, CFO of France Telecom: “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.”
What we think?
Once Deutsche Telekom began rejecting bids as “too low” from O2 and Vodafone, it was only a matter of time before it entered into a merger with someone. All the way along, DT has rejected the idea that it would sell T-Mobile, but instead wanted to make it profitable again. It looks like it has taken a good first step towards this, but there are still problems to be overcome. The biggest would probably be that T-Mobile is still in a network sharing deal with operator 3 – and that’s going to have to be overcome if Orange wants to offer mobile broadband services over the network.