Mobiles2day – Mobile Industry News

Europe’s top competition watchdog has approved the proposed merger of Orange and T-Mobile in the UK after obtaining concessions from the mobile phone operators’ parent companies.

The joint venture between France Telecom’s Orange UK and Deutsche Telekom’s T-Mobile UK is planning to start trading in April, and will be Britain’s largest mobile operator.

British consumer groups reacted angrily to the European Commission’s decision to approve the merger on the fastest possible timetable, accusing Brussels of clearing the transaction with “indecent haste”.

The merger could also destabilise a UK government-sponsored effort to end a dispute between Britain’s mobile operators over their ownership of radio spectrum.

O2, Telefónica’s UK subsidiary, and Vodafone’s British business are not planning a challenge to the Commission’s decision.

O2 and Vodafone, the UK’s largest and second- largest operators, are instead expected to intensify efforts to poach customers from the new market leader.

Orange and T-Mobile, the third- and fourth-largest operators, are attempting an ambitious integration that is supposed to provide cost savings of £3.5bn.

The operators are planning to rationalise their networks and retail shops, and cut staff.

Tom Alexander, chief executive designate of the combined Orange/T-Mobile entity, expressed confidence that the integration would run smoothly and insisted the transaction was “great news” for consumers.

The merger will cut the number of British network operators from five to four, and consumer groups had called on UK competition authorities to investigate the transaction.

Which?, the consumer magazine and campaigns organisation, accused the Commission of failing to protect consumers’ interests.

Brussels’ decision to approve the merger is conditional on the combined Orange/T-Mobile entity having an infrastructure-sharing agreement with 3, the UK’s smallest network operator owned by Hong Kong’s Hutchison Whampoa.

The Commission said 3’s viability could be threatened if it did not have a network-sharing deal with the joint venture that would save costs.

Source: Financial Times

Deutsche Telekom and France Telecom today announce that they have entered into exclusive negotiations to combine T-Mobile UK and Orange UK in a new 50:50 joint venture company.

The new joint venture will create the UK’s leading mobile operator. It will have a combined mobile customer base of around 28.4 million, representing approximately 37 percent of UK mobile subscribers*, based on figures at end December 2008. By integrating Orange’s broadband activities, the joint venture will also have the capabilities to offer convergent solutions to its customers in the future. The business will have pro forma 2008 revenues of approximately € 9.4 billion (£7.7 billion) and EBITDA of € 2.1 billion (£1.7 billion) **.

This combination will bring substantial benefits to UK consumers. It will result in expanded network coverage and enhanced indoor and outdoor network quality for 2G and 3G services, as well as better customer proximity through a larger network of own shops and improved customer services. The combination will place the joint venture in a better position to invest in innovative new services and to exploit new technologies. The new enlarged business will also be able to compete more effectively with the other two large mobile operators in the

market.

The key areas for the opex synergies of the joint venture are:

- Network & IT: Large-scale site rationalisation leading to significant savings

notably in site rental expenses, network operations and maintenance

expenses

- Distribution and Marketing: Higher proportion of sales through own shops,

resulting in lower distribution costs; a reduction in the combined number of

stores and savings in marketing costs primarily post roll-out of a new branding

strategy

- Other cost savings: Potential to reduce general and administration costs;

eliminate duplication in core support functions; optimise the workforce notably

in customer service, network and G&A operations

To achieve these opex synergies, the joint venture would expect to invest £600 to

£800 million in integration costs over the period from 2010 to 2014. Those costs

would primarily relate to the decommissioning of mobile sites, the rationalisation of the network of retail stores and the streamlining of operations.

· On the capex side, large scale savings are expected over the first five years following completion of the transaction, resulting from the integration and unification of the networks and from jointly expanding 3G coverage. The potential for capital expenditure savings, net of integration capex, is estimated at £620 million on a cumulative basis over 2010-2014, prior to stabilising at approximately £100 million a year from 2015 onwards.

These benefits will result in significantly improved operational performance, with long term EBITDA margin expected to be superior to those of the current market leaders thanks to size effects and with capex efficiency expected to be best in class.

To create the new joint venture, Deutsche Telekom would contribute T-Mobile UK on a cashfree, debt-free basis, including T-Mobile UK’s 50 percent holding in its 3G network joint venture with Hutchison and gross tax losses carried forward of at least £1.5 billion. France Telecom would contribute the whole of Orange UK including £1.25 billion of intra-group net debt in order to equalize the value of the contributions to the joint venture. Immediately after closing Deutsche Telekom would grant a £625 million shareholder loan to the joint venture, which would be used to simultaneously reimburse £625 million to France Telecom. As a result, the joint venture would have indebtedness of £1.25 billion, represented by two

shareholder loans of £625 million held by each of Deutsche Telekom and France Telecom.

The Board of the new joint venture company will have balanced representation from Deutsche Telekom and France Telecom. The management team would be led by Tom Alexander, currently CEO of Orange UK, as CEO and Richard Moat, currently CEO of TMobile UK, as COO. The governance of the joint venture would attribute extensive operational decision-making to the management team.

The T-Mobile UK and Orange UK brands will be maintained separately for 18 months after completion of the transaction. During that period management will review branding alternatives for the joint venture and will develop a new branding strategy recommendation for shareholder approval.

This transaction is expected to create substantial value for both shareholders and to be accretive from 2010 in terms of free cash-flow per share and from 2011 in terms of earnings per share. Both Deutsche Telekom and France Telecom would recognise their respective interest in the joint venture using the equity method after closing. It is planned that the joint venture will distribute 90 percent of its free cash flow to its two shareholders.

Prior to the signing, which is expected to be end of October, both Deutsche Telekom and France Telecom will undertake confirmatory due diligence and will complete the definitive documentation. The final agreement is subject to the approval of the Supervisory Board of Deutsche Telekom and the Board of Directors of France Telecom, and the completion of an agreed transaction would be conditional on approval by the relevant competition authorities.

Source: T-Mobile Press Release

Deutsche Telecom is under pressure from shareholders to either sell it’s underperforming T-Mobile UK mobile telecommunication business or merge it with another mobile operator in UK. Merger with Hutchison’s 3UK is a possible move.

René Obermann, DT’s chief executive, said the UK business had to do better, and he is to appoint new management. “We feel the UK market is competitive, and consolidation would do good for that market,” he said.

Mr Obermann emphasised he was not commenting about possible deal-making, but his statement was seized upon by analysts as evidence DT might sell its UK business.

DT’s leading shareholders – the German government and Blackstone, the private equity group – are beginning to lose patience with the underperforming UK business. DT is expected to take a €1.8bn writedown on the UK asset next week.

The most logical buyer would be one of its British rivals, because consolidation ought to enhance the profitability of the remaining companies.

The UK is the only important European market to have five network operators – Telefónica’s O2, Vodafone, France Telecom’s Orange, T-Mobile and 3 – and they periodically engage in price wars.

Possible buyer for T-Mobile UK business could be France Telekom, which already owns Orange UK mobile operator. An Orange-T-Mobile tie-up would command a 40 per cent share of revenue paid by British mobile users. That figure includes Virgin Mobile’s customers, because the company uses T-Mobile UK’s network to offer phone services.

Orange announced the launch of a £7 million above-the-line marketing campaign for Orange Wednesdays. The campaign is designed to promote the 2-for-1 cinema tickets deal available every Wednesday to all Orange mobile and broadband customers as the fifth anniversary of Orange Wednesdays approaches. Starting on 6th February with the first airing of the TV ad, the campaign will also appear across cinema, radio, press and outdoor.The Orange Wednesdays advert, created for TV and cinema by Fallon is shot documentary style and tells the heart-warming story of The Wicked Witch of the West from the timeless classic The Wizard of Oz, who now lives a less wicked life in rural England, enjoying a trip to the cinema with her friend, Vicki. The quirky friendship between The Witch and Vicki brings to life the pleasure of sharing the cinema experience with friends. James Corden of Gavin and Stacey fame provides the voice-over for the ad.

The campaign is the next evolution of the ‘I am’ campaign and reinforces the importance of relationships, underpinning Orange’s ‘Together We Can Do More’ vision.

Justin Billingsley, Director of Brand Marketing, Orange UK said: “Orange Wednesdays has been a huge success for us over the last five years. The campaign brings to life what Orange Wednesdays has delivered for millions of our customers: the enjoyment of sharing a trip to the cinema with friends. Our customers love us for this, so this campaign is about reminding customers about Orange Wednesdays and making sure that all our customers, whether they are Pay Monthly, Pay As You Go or Broadband, take advantage of this great deal.”

The above-the-line campaign follows the successful re-launch of Orange’s film portal last week which puts Orange Wednesday at the heart of the new film site. The new film portal, designed by the internal team, Poke and IMP Media not only lets you organise your Orange Wednesdays but is a great place to go to check out film trailers, news stories, celebrity interviews and peer reviews on the hottest new films. The site also offers opportunities for advertisers who want to align their brand with film. www.orange.co.uk/film

Orange has also signed a deal with PizzaExpress to offer Orange Wednesdays customers the chance to get a 2-for-1 deal at PizzaExpress for the next 6 months. All you need to do is simply text ‘film’ to 241 from your Orange mobile to get your cinema tickets, then head to orange.co.uk/orangewednesdays to download your PizzaExpress 2 for 1 meal deal voucher – including a choice of either free garlic bread or dough balls.

Source: Orange Press Office

Vodafone and Orange are close to signing a deal that will see the two companies share the costs of technology, engineering and maintenance at their network base stations in the UK.

The move, which could be announced shortly, is expected to save Vodafone £1bn a year at a time when revenue in some European countries is being hit by competitive pressure. The agreement is expected to be viewed positively by the City and should be seen as a feather in the cap of new chief executive Vittorio Collao, who took over from Arun Sarin.

Orange and Vodafone already share the costs of running some aspects of their base stations, but the latest agreement goes much further and is expected to include integrating their 3G access networks and possibly a degree of collaboration in managing their international network coverage. Germany’s T-Mobile and Hong Kong-owned 3 recently signed a pact that will enable them to pool their 3G network services in Britain.

In the City, investors are nervous that Vodafone will be hit by the global slowdown, but there is little evidence of consumers cutting back on calls or texting.

Colao is seeking to cut costs at the company to the tune of £1bn by 2010-11 and wants to make Vodafone “simpler” and “faster”, to cope with rising economic, competitive and regulatory pressures. He said: “My ambition is to lead Vodafone in an industry I believe is still attractive, and to fully explore … Vodafone’s strong advantages in brand, scale and assets.”

Vodafone has announced changes to its dividend policy by abandoning the practice of paying out 60 per cent of earnings.

Source: Guardian.co.uk