Is the T-Mobile and Orange merger good for IT managers?

By Dave Bailey
09 Sep 2009 View Comments
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Orange and T-Mobile are merging in the UK

Deutsche Telekom and France Telecom, the parent companies of T-Mobile UK and Orange UK, announced this week that their two subsidiaries were to merge into a 50:50 joint venture, creating the biggest mobile operator in the UK.

The new entity will have 37 per cent of the UK market, leapfrogging the former number one O2, which currently has a 27 per cent share.

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In the short term, organisations with accounts at T-Mobile and Orange would appear to have little cause for concern since in a joint statement the two parent firms said: "T-Mobile UK and Orange UK brands will be maintained separately for 18 months after completion of the transaction. During that period management will review branding alternatives for the joint venture and will develop a new branding strategy recommendation for shareholder approval."

The first hurdle to overcome is regulatory approval, which Matt Hatton, principal analyst at Analysys Mason, said is not guaranteed, or may come with stringent conditions attached.

"[It could mean] obliging the operators to help with providing rural broadband coverage," he said.

Deutsche Telekom and France Telecom are claiming as much as €4bn (£3.5bn) of synergies from the deal, but that may not benefit corporate customers.

"That is more about cost savings for those operators, than about cost savings in prices for businesses," said Analysys Mason analyst Richard Thurston.

"Consolidation is unlikely to change the competitive dynamic much. If anything, this will give business customers of Orange and T-Mobile more choice as they have the opportunity to combine the best parts of their respective portfolios."

This opportunity will be needed because currently the leader in the business sector is Vodafone.

Will Vodafone be quaking in its boots? Two days after the T-Mobile and Orange tie-up was announced, the operator - which also has a mobile virtual network operator (MVNO) relationship with BT - announced further fixed and mobile communications services for mid-sized enterprises, suggesting it is unfazed.

Another MVNO relationship that could have a major impact on the merger's success is T-Mobile's deal with Virgin Mobile. T-Mobile hosts Virgin Mobile's offering, which, as Hatton pointed out, accounts for five million of its 17 million subscribers.

"Any change to the ownership of T-Mobile could have implications for the relationship with Virgin, depending on Virgin's attitude to its new host," he said.

Gartner research director Katja Ruud said there are priorities to be considered by enterprises signed up to T-Mobile or Orange while the merger is on the long journey to completion.

"Monitor support and service levels carefully to ensure the contracted service is delivered while T-Mobile and Orange undergo this hugely complex task, " she said.

Ruud said that some - but not all - enterprise customers of T-Mobile and Orange have suffered from poor voice network quality, but some have also benefited from lower-than-market prices.

"However, that has not become street pricing for enterprise users," she said. "UK users have a hugely complex task to go through. Mergers are never easy."

The fact that T-Mobile and Orange were separately losing share to O2 and Vodafone, strengthens the case for the merger.

"Both operators have been struggling in the competitive UK market. They clearly hope that, by combining their capabilities, they will gain the economies of scale necessary to challenge O2 and Vodafone," said Hatton.

And another potential advantage for the deal is from Orange’s fixed broadband assets.

"The combination would enable T-Mobile customers to receive integrated offerings," said Ovum mobile practice senior analyst Steven Hartley and Ovum senior analyst Emeka Obiodu in a joint statement.

"This should not be overstated, but for T-Mobile the lack of a fixed strategy was leaving it somewhat exposed to future trends in the UK."

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