Market share shouldn't be a barrier to Orange/T-Mobile venture

POSTED BY Global Administrator

Well, then. While the putative sale of T-Mobile UK had been flagged for some time, Tuesday’s announcement of a planned merger between it and Orange UK certainly prompted the odd eyebrow in the analyst community to be raised a notch, not least upon the face of yours truly. I must confess, I had been extremely sceptical when the rumours of a deal first surfaced, and now feel obliged to resort to the volte-face employed by the immortal H.L. Mencken, namely his issuance of the instruction to a sub-editor (and I may be paraphrasing here) to “insert the word ‘not’, as and where appropriate” after he had submitted a written report on a debate on the assumption of an anticipated conclusion only to discover, on his return from the saloon bar, that precisely the opposite outcome had transpired.

Anyway, the primary reason for my initial scepticism was that any merger between T-Mobile and another leading UK operator might be rejected on the grounds of market dominance. However, T-Mobile’s dwindling market share means that this is no longer such a significant issue: the share declined from 24% in 2007 to 22% in 2008, and to 21% by the end of June 2009. If the 3.2 million or so MVNO subscribers to Virgin Mobile are excluded, this share falls to just 17%. With Orange sitting on a market share of around 20%, this would put any shared entity at around 37% - substantial, but well below that of Orange in France (45%), Telefonica in Spain (45%) KPN in the Netherlands (44%) and TIM in Italy (40%) and on a par with T-Mobile in Germany.

Furthermore, given that mobile penetration in the UK is now at 130%, it is increasingly difficult both to gain new subscribers, and to induce existing ones from upping sticks to Nice Mr Vodafone or Nice Mr O2 (not to mention that lovely Mr 3) who are all offering cut-price tariffs to customers of rival networks. Indeed, with five competing network operators at present, the UK is ahead of Germany, Spain and Italy (all four) and France (three). Thus, there is an argument to say that five networks is simply unsustainable, an argument supported by events in the Netherlands, which also had five networks at the end of 2004: two years later, and Telfort and Orange Netherlands were no more.

However, while most analysts agreed that five networks was pushing it, the general consensus was that it would be 3 UK (which after six years has only picked up 5% of active subscribers) that would be the first fatality. And the problem for 3 UK is that, if the merger goes ahead, it will suddenly look even more vulnerable, and there is the risk that four might then become three.

But all that is for the future. Ahead lie the decisions from the various competition authorities and the companies’ respective boards, and the various dependent decisions: which sites should be decomissioned, what becomes of the spectrum, do we go with orange, pink and another pretty colour for the corporate branding. And of course, the rather pressing issue of precisely what will happen to Virgin Mobile…