EU Gives Green Light to U.K. Orange/T-Mobile Merger

The European Union (EU) has approved the proposed merger between U.K. mobile operators Orange UK and T-Mobile UK, subject to the return of some of the operators' spectrum and assurances concerning network sharing. The EU executive branch, the European Commission, has agreed to the joint venture (JV), if the operators concerned agree to divest one-quarter (or 15 MHz) of their combined spectrum in the 1,800-MHz band and amend the existing network-sharing agreement between T-Mobile and Hutchison Whampoa's operator, 3 UK, to ensure the fifth-placed mobile player is able to continue to compete.

In a joint statement, owner of the Orange brand France Telecom and T-Mobile parent Deutsche Telekom have offered to divest two 15-MHz blocks of their joint spectrum by the end of 2011, clearing 2x10-MHz blocks for reallocation by the end of September 2013, with the remaining spectrum freed up by the end of September 2015. The operators also announced that they have reinforced the existing network-sharing deal with 3 UK—these measures are assumed to have met Hutchison Whampoa's satisfaction, while the EU has stated that the commitments offered "remedy the identified competition concerns".

The two operators have stated that they will run separately for 18 months after completion of the deal, but the implementation of the integration measures can start immediately, with the closing of the transaction expected in the next few months. The board of the JV will be made up equally of representatives from Orange and T-Mobile, with the management team led by Orange UK chief executive Tom Alexander and T-Mobile UK MD Richard Moat as chief operating officer.

Outlook and Implications

• Green Light for United Kingdom's Largest Operator: The JV, first announced in September 2009, would have some 28.4 million clients and a 37% market share, leapfrogging both Telefónica's O2 UK, which currently holds 27.7%, and Vodafone with 24.7%. The chief financial officer of Deutsche Telekom, Tim Höttges, welcomed the announcement, saying it was good news for its customers, U.K. staff and shareholders. He added that the operators could now pool their resources to create an outstanding high-speed mobile broadband network based on a significant potential of synergies, which would translate directly into customer benefits. Despite the large market share of the new operator, closest rivals O2 UK and Vodafone are still expected to be able to provide effective competition—and some level of consolidation has been seen as inevitable as the economic crisis has pushed the U.K. mobile market to breaking point.

• Approval Sparks U.K. Job Fears: The merger was initially expected to attract the attention of the U.K. Office of Fair Trading, but the consumer regulator, along with telecoms regulator Ofcom, has indicated it is happy for it to be referred to the EU (see United Kingdom: 22 February 2010: U.K. Regulator Clears Orange/T-Mobile Merger for EU Approval—Report). The European Commission has stated that it is pleased that it has managed to resolve the competition issues in this case quickly in close co-operation with the U.K. regulatory bodies; however, consumer groups have been less enthusiastic, with Consumer Focus stating that the potentially far-reaching implications of the deal for U.K. consumers should have been examined by the U.K. regulator and not behind closed doors in Brussels. Without quoting sources, the Times newspaper has estimated that up to 2,000 jobs may be on the line as the operators look to cut some £3.5 billion (US$5.26 billion) in costs during the merger. However, these casualties are somewhat inevitable and will not be immediate due to the timescale involved.

• Frequency Assurances Clear the Way for 4G Roll-Out: The release of the frequencies in the 1800-MHz band, which is key for high-speed mobile broadband services, could provide stimulus to the 4G market as the spectrum can now be re-farmed to other operators. O2 UK has recently announced a successful trial of LTE technology while the current market leader and key rival, Vodafone, has recently shifted its focus to improving network quality as growing data traffic generated by smartphone users has caused some customer service access issues of late (see United Kingdom: 14 December 2009: O2 UK Announces Successful Trial of LTE with Huawei and 4 January 2010: O2 UK Apologises for Network Failure in London).