UK mobile market set for shake up

08 September 2009

LONDON: Deutsche Telekom is in discussions with France Telecom regarding the possibility of forming an alliance in the UK, which could result in the two mobile phone operators taking a leading position in the country.

The possible joint venture between the two companies would take the form of a tie-up between Orange, owned by the French firm, and Deutsche Telekom's T-Mobile, which is also currently the subject of a bidding war.

At present, Telefónica'sO2 leads the UK mobile market, with a share of 27.7%, followed by Vodafone, on 24.7%, Orange, on 21.5%, and T-Mobile, on 14.9% overall.

As such, Orange and T-Mobile would enjoy a market share of over 36% if they do ultimately decide to combine their operations.

Deutsche Telekom has recently received offers of around £4 billion ($6.5bn; €4.6bn) from Telefónica, France Telecom and Vodafone, for T-Mobile in the UK, which suffered a writedown of €1.8bn earlier this year due to its poor performance.

It is thought that a tie-up between Deutsche Telekom and France Telecom would be more likely to receive approval from regulators than if Telefónica or Vodafone purchased the mobile operator.

This is because Telefónica would have a market share of over 43% should it seal such a deal, while Vodafone's comparative total would reach 40% if it was successful in this aspiration.

Citigroup estimates that Orange's British operations are worth £4.1bn, and values T-Mobile at £3bn, and it is thought both brands would continue to operate for a time if their owners reach agreement, in order to limit any potential loss of customers.

Whatever the outcome, analysts argue the UK mobile market currently has too many major operators, meaning consolidation in the sector would allow all the main players to improve profit margins.

One further possible element to the deal is that O2's success in the UK has been driven in part by its exclusive agreement to carry Apple'siPhone.

However, this is up for renewal in November, and there is speculation that Apple will choose to go with whichever company is then the UK market leader.

Data sourced from Financial Times; additional content by WARC staff