T-Mobile's future looks Orange

Paul Nesbitt

The merger of UK networks T-Mobile and Orange has been confirmed by the companies' respective owners France Telecom and Deutsche Telekom; the two will merge their UK subsidiaries into a 50:50 joint venture company, which is expected to launch during the first half of next year, subject to regulatory approval.

The new joint venture will create the largest network operator in the UK with a market share of around 37%, as it combines T-Mobile's 16.6 million customers and Orange UK's 16 million mobile customers. However customers will not notice much difference until 2012 when the two brands will be merged into one. It has not yet been decided what the new brand will be, but insiders said that the most likely outcome will be the adoption of one of the brand names and the ditching of the other. As Orange's UK operations are larger, it seems more likely to survive as a brand.

Who benefits?

Both companies claim that customers will benefit from the combining of their respective networks, which are both strong in areas where the other has weaknesses. On top of that there will be the dismantling of at least 5,000 phone masts, where the two networks overlap. Apart reducing eyesores, the combining of the two networks is expected to save the two companies billions in costs, as they cut staff from call centres, close down duplicated high street stores.

Neither company has yet made any promises about passing on reduced costs to customers in the form of lower tariffs.

Tough sell to regulators

The Office of Fair Traiding will need to be convinced that leaving the UK with just three large networks O2, Vodaphone and Orange/T-Mobile owning more than 90% of the market, is in the consumer's interest. Such an arrangement has not typically led to vigorous price competition in other industries. And an approved merger would leave the fifth biggest operator, 3, in a difficult position, with a market share of less than 10%.

Competition lawyer Becket McGrath described the move as essentially removing a major competitor, and he warned that industry analysts are predicting this will make it easier to raise prices. McGrath said that this could make it 'challenging' to obtain regulatory approval.

Orange and T-Mobile have claimed that their lower overheads will enable them to invest more in improving and expanding their network.