Business Watch: JV questions

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It’s been six long months since Orange and T-Mobile unveiled a plot to merge their British businesses, but now they finally have the go-ahead for the joint venture, which will change the face of the UK mobile market forever.

It took eight weeks of regulatory scrutiny for the deal to get the nod from the European Commission – but it could have taken an awful lot longer had the UK’s Office of Fair Trading (OFT) stuck it’s oar in.
The OFT withdrew its request for a review in the UK after Orange and T-Mobile’s parents – France Telecom and Deutsche Telekom – agreed to crucial concessions.

While the rest of the industry was at Mobile World Congress in Barcelona, the deal’s negotiating team offered to give up a quarter (or 15 MHz) of its spectrum in the 1800 MHz band and renegotiate the terms of the network-sharing agreement between T-Mobile and 3.

Analysts at CCS Insight saw it thus: “Although the creation of the new joint venture was fraught with potential pitfalls, it was negotiated by both companies skilfully and with some success.

“We estimate a referral to the UK authorities would have added between eight and 12 months to the process. The consequences of a drawn-out review would have been disastrous to the new company’s ambitions, allowing its competitors to capitalise while it operated in limbo.

“Instead, both companies listened to the concerns of European and UK authorities and made significant concessions.”

The joint venture will become the country’s biggest mobile operator, with more than 30 million customers, pushing Vodafone into a distant third place and putting pressure on it to join the consolidation game by teaming up with 3, as it has in Australia.

3 has played an important role in delays to the deal getting approval.
Two years ago T-Mobile and 3 formed a UK joint venture which pooled their network assets.

The watchdogs were concerned that a merged Orange and T-Mobile would be less committed to that venture and could have wriggled out of it, which would have hamstrung 3’s coverage and undermined competition.

So the EC insisted: “The (approval) decision is conditional upon the amendment of an existing network sharing agreement with Hutchison 3G UK (3UK), to ensure that there remain sufficient competitors in the market.”

With a market share of 37 per cent, the venture will be powerful, which is why the EU executive said the other condition imposed on the companies was the sale of a quarter of the combined spectrum of the merging firms in the 1800 MHz band.
It’s doubtless not as much spectrum as O2 and Vodafone would have liked to have been released, particularly as the joint venture will leapfrog them both in size. Indeed, they might have good cause to feel Orange and T-Mobile have got off lightly.

But as it was, Ronan Dunne, chief executive of Telefonica O2 UK, gave a cautious welcome to the EC’s decision.

Full article in Mobile News issue 459 (March 15, 2010).

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