Deutsche Telekom and France Telecom plan to merge their respective T-Mobile and Orange brands in Britain, the companies announced today.
The deal would create the U.K.'s largest mobile operator and remove Telefonica SA from its current spot as market leader through its O2 brand. Verizon Wireless parent company Vodafone holds the nation's No. 2 spot with a 24 percent market share.
The joint venture will dominate the British market if approved by European regulators. Together, Orange and T-Mobile would have 28 million customers and a 37 percent market share.
Deutsche Telekom and France Telecom said they plan to spend between $984 million to $1.3 billion through 2014 to merge operations. The merger will also result in cost-savings of more than €4.0 billion, or $5.7 billion, and each operator will have an equal stake in the venture, they said. An unspecified number of workers will be laid off as the companies streamline their operations. T-Mobile and Orange will continue under their own brands for 18 months after the deal goes through to allow time for a new branding strategy.
The deal faces scrutiny by both British and European regulators and must also be approved by each company's supervisory board.
"It is by no means guaranteed that U.K. competition authorities will approve the deal," said Matt Hatton, principle analyst at Analysys Mason, in a report. "... Even if they do, they may attach some stringent requirements, such as obliging the operators to help to provide rural broadband coverage."
Hatton also questions the deal's purported cost savings. "It is often difficult to find the operating savings when merging such well-established operating businesses," he said. "It is hard to combine back offices, and Orange and T-Mobile correctly acknowledge that it will take a few years."
Ovum senior analysts Emeka Obiodu and Steven Hartley are optimistic that the merger will go through. Obiodu and Hartley expect regulators to have a "broader definition of dominance" when approving the deal. They base their predication on existing market conditions in several European countries, including France and Spain, where leading operators have market share similar to that of the combined Orange/T-Mobile business.
The analysts further stated that the deal would ultimately benefit consumers as long as regulators impose the necessary safeguards. "Competition is good for consumers, but with five major players the U.K., operators were competing themselves to death and badly needed to consolidate," they said in a report.