The merger announced this week between T-Mobile and Orange in the UK, which will make the biggest cellular operator there, may also unleash new services, the company says. One of the areas that this may influence is mobile TV, and if the combined operation decides to takes its UK mobile TV trial, using IP Wireless TDD technology, then it has the potential to break the UK mobile TV deadlock.
The technology for this also took another step forward this week (see separate story in this issue) when the GSMA endorsed IMB (Integrated Mobile Broadcast) which is effectively a tidied up and standard version of this technology.
But this will all have to wait for the dust to settle on a deal which has turned the UK mobile world on its head, taking two operators which were entering slow decline and making them the UK market leader overnight. Vodafone and O2 teams will be huddled together in strategy rooms late into the night trying to work out how to unseat the new market leader.
The deal creates a 50-50 jointly owned venture and the two are now in exclusive negotiations. In our view France Telecom’s Orange was always favorite to offer a safety route for the underperforming T-Mobile in the UK. In the past the German and French telco incumbents have often behaved as if they were an exclusive club, for instance collaborating to steal away key transactions from rivals like Vodafone, at the last minute.
In 2007 Vodafone outbid everyone to buy out a Spanish based ISP from T-Mobile owner Deutsche Telekom only for Orange to steal the deal at the death and wrap it up with a sale of Orange Netherlands to T-Mobile.
But for consumers everywhere this can only be good news. The venture will create the UK’s largest mobile operator with 28.4 million customers, some 37% of UK mobile subscribers, with expanded network coverage, better indoor reception and with a bigger retail footprint. The press release talked about it being in a better position to offer new services and to exploit new technologies and this is not idle chatter. Not only is it poised to turn a huge mobile TV pilot into a fully fledged service, but it will also have opportunities in other data and video services such as streaming.
Ofcom figures out in May showed O2 was the market leader with 19.4 million customers and its nearest rival had just 16.5 million. Now that has all been turned on its head, in a deal which creates a de facto market leader. The two will now spend 18 months running as separate brands, and then integrate in a single marketing push. For now though just by combining their resources, reception will improve and costs will fall.
Speculation has been rife for 4 months after T-Mobile UK came out with a loss making quarter and German investors called on the company to take some sweeping measure to fix things. The merger will eventually save some £3.5 billion a year in network costs, and another £600 million or more in overheads, starting to reach the bottom line in about 6 to 9 months.
The merger will also absorb the Orange fixed broadband lines giving the joint venture the chance to go head to head with BT on IPTV as well. A combination of fixed line and cellular broadcast mobile TV may prove irresistible in the new company.
The UK is exceptionally competitive in fixed broadband, with BT taking just over half the market, and unbundlers like Carphone Warehouse and Sky, making huge dents. Both Telefonica and Orange have been attacking this market with Telefonica building an ISP from scratch. Suddenly the UK will become an all out war zone on the telecoms front, with all the major European groups represented.
The new Orange T-Mobile business will have revenues of around £7.7 billion with decent margins, making it the largest UK cellular operator by revenues as well, though that is not as clear cut.
Timotheus H’ttges, CFO 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.’
Given the huge chunks of spectrum that the two hold, Ofcom and the competition authorities may be unhappy with this deal and could possibly block the deal or make it contingent on some spectrum coming back under Ofcom’s control.
Orange and T-Mobile will immediately upon completion cut spending on two 3G networks and just build one. The deal is expected to signed at the end of October, and is subject to board approval and all the usual regulatory hurdles.