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25
Feb
2010

Clearance seems likely for Orange/T-Mobile joint venture

POSTED BY Global Administrator

Have you recovered from Barcelona? That goes for those of you who weren’t actually there as well, and had your inboxes deluged with the billion and one announcements from everyone from major vendors and operators to start-ups who only came into existence three hours before the Congress opened. (In fact, because being paper free was de rigeur this year, you probably had more emails than ever before.) And for those of you that were there, you’re probably just getting over the cold you caught from spending days tramping round the FIRA in the cold and wet and living on a diet of canapés and alcohol.


Anyway: you’re safe now, it’s over; you can sit back, relax, and digest the myriad annual results that are pouring out from the big guns, the global players in the mobile network world. The biggest howitzer of them all, Vodafone, announced its results before the Barcelona jamboree, but today we’ve had both France Telecom and Deutsche Telekom, the latter now boasting a fine presence in the Balkans following its acquisition of OTE last year.


Not unsurprisingly – particularly given the uncertainty in the industry resulting from the recession - both registered significant falls in their annual profits: France Telecom’s fell by 22% to €3.47 billion, while Deutsche Telekom was hit even harder as profits fell by 76% to €353 million: in the case of Deutsche Telekom, the decrease was largely attributed to “higher levels of depreciation, amortization and impairment losses, primarily as a result of impairment losses on goodwill”.


From a mobile perspective, it is clearly becoming increasingly difficult for these companies – and other similar multinationals – to maintain revenues (and margins) in their European strongholds given the high penetration rates in these markets (and consequent high acquisition costs) allied to flat or declining ARPUs. For while mobile data revenues are continuing to rise, in many cases they are not making up the shortfall from sharp falls in voice, in part accentuated by regulatory caps on interconnection rates.


Hence the urgency with which these two companies have been pursuing the merger of their UK operations, so that they can both benefit from the economies of scale such a merger would bring.


But as you might well be aware, the UK’s Office of Fair Trading (OFT) has raised concerns on the grounds that the merged entity might threaten competition (although, as I’ve pointed out previously, the 37% customer share that T-Orange/O-Mobile/whatever would manage would be far less than, say KPN in the Netherlands (47%) or that Telefonica has in Spain (45%) or that Orange itself has in France (45%)).


On the basis of a level European playing field, then the putative merged entity would pass this test.  Furthermore, on the other potential sticking point – the fact that the companies dominate the 1800MHz band in the UK – there are also signs of movement. Indeed, a report in the UK’s Sunday Telegraph at the weekend suggested that the European Commission was preparing to fast-track the merger on the proviso that Orange gave up some of its 1800MHz spectrum; subsequent reports have indicated that clearance could be granted within the next few days, and that the matter would not be referred back to the OFT.


France Telecom’s confidence in clearance being granted can be seen from the fact that the income statements for Orange UK have already been presented in “consolidated net income of discontinued operations” within its latest financial report. This might be viewed as counting chickens before they’re hatched/transferred into a 50:50 joint venture, but it does seem as though we’re on the final strait as regards this one.


T-Orange? O-Mobile? Your guess is as good as mine…