Summary
By creating a joint venture Deustche Telecom's T-Mobile and France Telecom's Orange will aim to head off competition authority concerns over significant market power and yet reap the benefits of economy of scale.
The two operators share similar spectrum and technology & have already discussed networking sharing to reduce costs and this takes it one step further.
Initially both operators will continue to use their own brands but will have to consider whether to adopt an MVNO approach going forward/
Analysis
Much analysis has already been published on this deal so lets look at some of the other factors at play here.
Both operators use DCS1800, GSM at 1800MHz, have similar network features (based on their licenses) and use potentially similar network architectures. While Orange majors on Nokia, T-Mobile uses Ericsson radio and core technology - both manufacturers products have and do interwork using standardised interfaces. This means integration can occur much earlier and with less cost.
Both operators have already discussed network sharing, eg sharing sites, towers, cabins, etc though not radios as that is anti EU law [currently]. By joining that additional sharing can now take effect. They have published figures, £600m to £800m to cover integration. Some of this will go to decommissioning overlapping sites, a task that T-Mobile has already started with its MBNL Ltd joint venture with Hutchison 3G.
Currently Orange has a capacity deficit in its 2G network, primarily used to carry voice, so making use of the T-Mobile 2G network will be an added benefit. Day one this can be handled by roaming between the 2 networks.
T-Mobile also has Virgin Mobile as its largest MVNO customer, so presumably this could allow Virgin to access Orange's network which has more features such as Orange World, Music, etc.
A further factor in this equation is the current state of negotiations between all 5 UK mobile operators and the UK Government and Ofcom (the telecom's regulator) over the Digital Britain report and access to new spectrum respectively.
Digital Britain:
This report delivered in June 2009 includes a key requirement from Government for a Universal Service Commitment for broadband and its thought the mobile operators will be key players here as those who do not get broadband today will most probably need to use wireless/mobile technology.
A combining of the 2 operators, with a 37% market share will put them in a strong position to capitalise on this requirement by government. Also with a joint network it is likely that they will have sufficient network coverage and capacity, so minimising further investment.
Ofcom:
All the operators are at loggerheads with the regulator and themselves over access to new spectrum and changes in their licenses for existing spectrum. Basically,
- 4 of the 5 wish to re-farm their 2G spectrum and use 3G technology, this will give them 2 to 3 times more voice network capacity
- Orange and T-Mobile wish to get access to some of Vodafone's and Telefonica's O2 spectrum (900Mhz as opposed to their 1800MHz) as it has greater range and when using 3G will mean less sites are needed and less investment
- 4 of the operators also wish to get access to the Digital Dividend spectrum arising from analogue TV switch off - at 800MHz this will be prime spectrum for delpoying mobile broadband (especially in rural areas - see Digital Britain) using new LTE technology (same as is being used by Verizon)
- finally all 5 operators could be bidders for the upcoming 2.5GHz spectrum at auction in 2010. By having 2 less operators this means the price of spectrum will be lower as potentially 3 or 4 operators could get sufficient spectrum. This spectrum is needed, 2012 onwards for deploying high bandwidth 4G networks in dense urban metro areas, again with LTE technology.
Finally there is already an ongoing relationship with Hutchison's 3G network by T-Mobile and speculation that these 2 networks could merge. Logically we could see this happening and 3 becoming part of the new T-Mobile/Orange merger.
So overnight we could see 5 mobile networks being shrunk to 3, good news for the mobile operators as investment costs are shared and bad news for the equipment vendors (Ericsson, Nokia Siemens Networks, Alcatel-Lucent, Motorol, Huawei and ZTE) as market opportunities shrink.
Peter Curnow-Ford consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
