T-Mobile to merge with Orange

T-Mobile and Orange seem set to merge their UK operations after the companies confirmed they were in "exclusive talks" about partnering on a 50-50 venture. The deal will establish the merged firm as the biggest single mobile operator in the UK, with some 37% of the market. The new firm would have approximately 28.4m customers and a turnover of roughly GBP7.7bn (USD12.7bn), based on 2008 figures.

In a statement, T-Mobile UK owner, Deutsche Telekom, said the deal would lead to: "Expanded network coverage and enhanced indoor and outdoor network quality for 2G and 3G services". France Telecom's CFO, Gervais Pellissier, adds that the deal would signal "long-awaited consolidation" among UK mobile operators.

The news follows reports that Deutsche Telekom had also received buyout offers from both O2 and Vodafone. Weekend reports claimed T-Mobile favoured an Orange merger, following lower-than-expected buy-out offers. According to a report in the Guardian, Vodafone and Telefonica-owned O2 have each made GBP3.5bn offers for the fourth-place UK operator. However, reports in The Financial Times claim the two rival operators made informal bids at the end of last month, worth roughly GBP4bn.

A merger with France Telecom-owned Orange could reportedly save T-Mobile hundreds of millions in networking costs, though critics of this approach claim a clean sale would avoid technical and management issues involved in merging the two entities.

The reports come after months of speculation over the future of T-Mobile UK. In May, Deutsche Telekom reported a EUR1.12bn (USD1.5bn) loss for Q1 2009 after writing-down the value of its under-performing UK unit by EUR1.8bn (USD2.41bn). A month later, Deutsche Telecom admitted that it wanted to make T-Mobile's "operations more profitable", but denied it was in active talks to sell the unit.

Currently, O2 leads the UK mobile market with a 27.7% share, followed by Vodafone with 24.7%. Orange is third with 21.5%, while T-Mobile holds 14.9%. With 3 ranking as the fifth-place operator, the UK has a more crowded competitive market than many of its European counterparts including France and Italy, which have three and four national operators respectively.