T-Mobile & Orange To Merge

Tuesday, September 8, 2009
By SHP

Following yesterday’s news that T-Mobile was the subject of bids from Vodafone and Telefonica (the Spanish owner of the O2 brand), comes today’s announcement that T-Mobile is to merge with France Telecom’s UK brand Orange.

This wedding of the third and fourth largest UK mobile phone companies will create a new market leader, with 36.4% of market revenues.  O2 will be in second place with 27.2%, and Vodafone in third place with 24.7%.

The combined company will have a staggering 28.4m customers, with O2 and Vodafone lagging on 19.6m and 16m respectively (source Ofcom Q1 2009).

These figures go some way to highlighting the need for T-Mobile to do a deal – with such a massive client base they simply have not been able to generate sufficient returns.

The mobile phone market is a very different place these days – EC regulations have been imposed in order to drive down prices for roaming calls, text messages and termination rates (the wholesale tariffs charged by the operator of a customer receiving a phone call to the operator of the caller’s network).

As such, mobile phone companies are often viewed as utilities these days – high volume, low margin, and heavily regulated.

This deal will be looked at by the Office of Fair Trading, which considers all deals where an entity with over 25% market share is created.

The companies have indicated that there are significant cost savings to be made over the medium term.

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