Business Watch: Orange/T-Mobile JV

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Orange/T-Mobile issues

Orange’s parent France Telecom and T-Mobile owner Deutsche Telekom told a Financial Times conference in London they didn’t think they should have to give up wireless spectrum to get the deal past the watchdogs.

The message was delivered by Hamid Akhavan (pictured), chief operating officer of Deutsche Telekom, and Olaf Swantee, who runs Orange’s mobile operations outside France.

The companies have signed off an agreement to merge their UK arms but the Office of Fair Trading, and regulators in Brussels, have yet to conduct full reviews.

The joint venture will easily overtake O2 to become the biggest mobile network operator in the country, with a 37 per cent share of the UK mobile market by revenue. Typically, regulators take a very close look at any deal which gives a player in any market more than a third of that market.

The watchdogs’ chief concerns in any merger are that consumers should be protected and that the merged entity will not be able to exercise too much control over market pricing.

Ofcom, the UK telecoms regulator, said last week that this deal is likely to be reviewed intensely due to the risk of consumer harm.

Moreover, O2 and Vodafone are expected to lean on regulators everywhere to force Orange and T-Mobile to relinquish parts of their 1,800 megahertz spectrum.

Orange and T-Mobile own the lion’s share of the spectrum at this frequency, which is well suited for 4G, allowing for broadband download speeds of 50Mbps and upwards.

But Akhavan is having none of it. Asked whether Orange and T-Mobile should relinquish spectrum so as to secure regulatory approval, he retorted: “Absolutely not.”

He also made a strong point in noting that network operators’ profit margins have been put under tremendous pressure by fierce competition. That has limited the networks’ abilities to make invesments in new technologies that governments’ want them to.

But the flipside is that tough competition has translated into lower prices and improved services and has therefore been good for consumers.
Clearly, this merger makes sense for the UK mobile industry but the question is whether it makes sense for consumers too. That is what Orange and T-Mobile will have to argue hard at.

Other reports suggest Orange and T-Mobile may see their proposed team-up sent to Europe for approval to speed it up by six months. Britain’s Office of Fair Trading has yet to finish its deliberations, but The Independent believes the Office of Fair Trading no longer wants the tie-up to face a competition inquiry here.

The paper added the European competition commissioner, Neelie Kroes, is expected to receive documents from the companies on the deal before Christmas. In normal circumstances, the commission would take about six months to decide whether to approve the deal and if so, whether to recommend any divestments.

The British competition process usually takes about six months longer than those held by the commission – partly because the Office of Fair Trading refers cases to the Competition Commission.

Full article in Mobile News issue 453 (November 30, 2009).

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