EC expected to green light FT/DT UK mobile deal

22 Feb 2010

According to British broadsheet The Telegraph, the European Commission (EC) is expected to give the go-ahead to the merger of France Telecom (FT) and Deutsche Telekom’s (DT’s) respective UK mobile units, Orange UK and T-Mobile UK. It is understood that the EC will agree to fast-track the tie-up on the back of recent concessions made by the European giants, including the relinquishing of spectrum, overriding any concerns of rival cellcos in the UK market alongside the Office of Fair Trading (OFT) and the telecoms regulator Ofcom. The rumoured offer by FT and DT to relinquish up to 25% of spectrum held by the combined entity at the 1800MHz bandwidth is believed to have persuaded both the OFT and Ofcom to advise the EC that they did not see ‘sufficient detriment’ that would call for a UK-based competition inquiry; previously the OFT had called on the EC to pass the matter back to it for study. While the EC has until 1 March 2010 to make a final decision on whether to pass the matter back to the UK authorities, it is now widely expected that the Commission will conclude its investigation this week, and will not call on the OFT to consider the tie-up.

Another reported factor in gaining the support of the European regulator for the deal is the decision to update a network sharing agreement already in place between T-Mobile and the UK’s smallest cellco by subscribers, Hutchison 3G UK (H3G UK). Under the new terms between the operators, H3G, which trades under the ‘3’ banner, will share up to 16,000 cell sites with both T-Mobile and Orange, compared to the 13,000 previously shared between just H3G and T-Mobile. It is understood that the deal was completed by the end of the past weekend.

Under the terms of the merger both the Orange and T-Mobile brands are expected to be retained, and DT is to contribute to T-Mobile UK on a cash-free, debt-free basis to the venture, including T-Mobile UK’s 50% holding in its 3G network joint venture with H3G, while FT for its part will include the whole of Orange UK, along with GBP1.25 billion (USD1.93 billion) of intra-group net debt in order to equalise the value of the contributions to the joint venture. Both T-Mobile and Orange have said that by merging infrastructure and information technology, shifting more distribution to their own shops and cutting administration costs the expected annual savings in operating costs following the merger would be around GBP510 million from 2014.

United Kingdom, Deutsche Telekom (DT), EE, Ofcom, Orange Group, T-Mobile UK