The long drawn-out sale of Deutsche Telekoms UK branch T-Mobile has entered a new phase. Reports today say that the unprofitable operator, which is the fourth largest in the UK, is now in talks with three different companies. And those three companies just happen to be the three largest mobile operators in the UK.
Who is involved?
The Financial Times reports that Vodafone, Telefonica and France Telecom are now all in talks with Deutsche Telekom to buy up the flagging UK operation. France Telecom owns the UK operator Orange, while Telefonica owns O2. This means that every single operator that is larger than T-Mobile is looking into buying it. And you can see why – T-Mobile currently holds around 15% of the UK market. The top 3 are running pretty close to one another: O2 is in the lead with almost 28%, followed by Vodafone at around 25% and Orange at 21.5%.
Will there really be a buy-out?
There are reasons to believe that these talks will not result in a 100% acquisition of T-Mobile.
First of all, whichever operator succeeds in the buyout could potentially gain a significant lead on it’s competitors. In fact, an out right acquisition would create a company so large that it has been suggested the UK regulators might block such a move. That could mean that rather than a buyout, Deutsche Telekom might be looking at setting up a joint-venture.
Second, the joint-venture idea would sync up with the DTs earlier claims that it doesn’t intend to sell T-Mobile, but wants to “make its operations more profitable”
Third, there are large technical complications involved in a merger of T-Mobile services with anyone else. The regular, 2G services from T-Mobile run on a different spectrum to both Vodafone and O2. That’s not an insurmountable obstacle, but it would involve a huge investment in actually replacing a lot of the network equipment that T-Mobile has installed in the UK. The 3G networks aren’t any easier – T-Mobile is already in a network-sharing deal with operator 3. Any purchase of T-Mobile by another operator would cause massive legal and contractual problems with 3. In fact, the only operator that could get away with a clean purchase of T-Mobile IS 3 – but nothing suggests that 3 is interested.
However, as the Register shows, the large spectrum holdings of T-Mobile could prove incredibly useful for any operator looking to expand into LTE – like Vodafone.
What we think?
It’s hard to tell where this is going to go, but I can see a couple of options:
1) The Buyout – one of the Top 3 completes a 100% buyout of T-Mobile, leading to a massive single network. But, as explored above, this seems unlikely.
2) The Joint-Venture – one of the Top 3 buys a controlling interest in T-Mobile. T-Mobile continues to run it’s own operation, but profit share and other assets will be held by the Daddy operator.
3) The Break-up – T-Mobile could be broken up into different parts and sold off, like Canadian operator Nortel. For example, Vodafone would probably be interested in at least buying the LTE capable spectrum from the smaller operator.
