As tipped by all market watchers yesterday afternoon, Deutsche Telekom and France Telecom have confirmed they are to enter a UK 50:50 joint-venture and pool their T-Mobile UK and Orange UK network operations.
The new network operation, which will be signed by the end of October and must also pass UK regulatory approval, will immediately leapfrog market leader Telefonica O2 UK into first place in the market, with around 37 per cent share and28.4 million customers. Combined, the venture will have revenues of €9.4 billion (£7.7 billion) and EBITDA of €2.1 billion (£1.7 billion)
O2 has around 27 per cent, Vodafone has 25 per cent, Orange has 22 per cent and T-Mobile has 15 per cent at present.
The duo said the two network brands will run seperately for 18 months. Orange UK chief executive Tom Alexander (pictured right) will become chief of the new combined business, and T-Mobile UK chief executive Richard Moat (pictured left) will take the role of chief operating officer.
The merger and integration of T-Mobile UK with Orange UK should generate savings in excess of €4 billion (£3.5 billion).
Timotheus Höttges, chief financial officer of Deutsche Telekom, said: “We will become market leader – our customers will benefit in many ways, for example from the best mobile broadband offer in Britain.
“In the second-biggest market in Europe, which is undoubtedly one of the toughest and most competitive, we are giving T-Mobile UK a clear and strong future. And, with our partnership, we have taken the most value enhancing strategy for Deutsche Telekom and its shareholders.”
Gervais Pellissier, chief financial officer of France Telecom said: “By combining our operations in the UK, we anticipate the long-awaited consolidation in one of Europe’s most competitive markets, thereby creating a well positioned player.
“This will reinforce fair competition and will provide strong benefits for our customers through improved coverage, quality of service and an enhanced capacity to develop new services and technologies. Our shareholders will benefit from higher profitability and an immediate cash flow per share accretion without impacting the overall indebtedness of the parent companies.”
Deutsche Telekom is to contribute T-Mobile UK on a cash-free, debt-free basis to the venture, including T-Mobile UK’s 50 percent holding in its 3G network joint venture with Hutchison and gross tax losses carried forward of at least £1.5 billion.
France Telecom is to contribute the whole of Orange UK including £1.25 billion of intra-group net debt in order to equalize the value of the contributions to the joint venture.
Immediately after closing Deutsche Telekom would grant a £625 million shareholder loan to the joint venture, which would be used to simultaneously reimburse £625 million to France Telecom. As a result, the joint venture would have indebtedness of £1.25 billion, represented by two shareholder loans of £625 million held by each of Deutsche Telekom and France Telecom.