3rd UPDATE: Deutsche Telekom, France Telecom Plan UK Mobile JV
September 07 2009 - 11:58AM
Dow Jones News
Deutsche Telekom AG (DT) and France Telecom (FTE) will merge
their U.K. operations to form the country's largest mobile phone
operator, toppling current market leader Telefonica's (TEF) O2 from
top spot, people familiar with the matter told Dow Jones Newswires
Monday.
The deal is expected to be signed Monday and announced Tuesday,
before market open, the people said.
According to another person familiar with the matter, France
Telecom will contribute EUR1.2 billion to the joint venture. It was
not immediately clear if this will be in cash or assets.
The joint venture, described by the people familiar with the
situation as a "merger of equals," will have a combined 30 million
customers, excluding Virgin Mobile, which runs on T-Mobile's
network, and 38% of the fiercely competitive U.K. mobile market,
where it will battle with O2, Vodafone Group PLC (VOD) and
Hutchison Whampoa Ltd.'s (HUWHY) 3.
No full takeover is planned by either side in the foreseeable
future and the companies plan to run the joint venture
independently, the people added.
France Telecom and Deutsche Telekom declined to comment.
The move follows intense speculation about a potential sale of
T-Mobile U.K. after Deutsche Telekom earlier this year said it was
evaluating all options for the business, and Chief Financial
Officer Timotheus Hoettges in May put an equity value of GBP3.3
billion on the unit.
In its first quarter, when it lost 111,000 customers (including
Virgin Mobile customers), Deutsche Telekom took an impairment of
EUR1.8 billion on T-Mobile UK.
Still, T-Mobile's second quarter showed some improvement in the
rate of mobile service revenue decline in euro terms, down 11.4%
year-on-year in the three months to June 30 from a decline of 20.4%
in the first quarter.
Vodafone, the world's largest mobile phone operator, is believed
to have also run the slide rule over the business, for which
Deutsche Telekom hoped it could get around EUR4 billion in any
sale, according to media reports.
But a potential outright takeover looked unlikely with a wide
variance in asset valuations keeping buyers and sellers apart,
particularly in the current economic climate and as mobile
operators cut back on expenditure so they can return cash to
shareholders.
The U.K. mobile market is one of the most crowded in Europe,
with four large operators as well as challenger network 3 all vying
for the wallets of mobile subscribers, increasing competition and
further depressing prices already under pressure from regulatory
shifts.
The network operators have looked to keep costs down through
network-sharing agreements, with T-Mobile UK sharing its network
with 3, and Vodafone recently tying up with Telefonica's O2 in a
wide-ranging deal.
Orange has a smaller network-sharing deal with Vodafone.
The deal is likely to be looked over by the U.K. Office of Fair
Trade, which considers all deals that create an entity with a
market share greater than 25%, and, depending on its make-up, could
also attract the interest of the European Commission.
-By Kathy Sandler and Geraldine Amiel, Dow Jones Newswires;
44-207-842-9293; kathy.sandler@dowjones.com;
(Archibald Preuschat in Dusseldorf contributed to this
article.)