Summary
T-Mobile UK, as the 4th largest operator has one of the lowest ARPUs and is not gaining on its competitors and its valuation at Euro3.2bn is on the low side. It has excess capacity which could be attractive but that is not the issue, this is about a single move to become the UK's No1 mobile operator overnight and never have to look back over ones shoulder again. Further all the operators are currently at each others throats over 2G Re-Farming, Digital Dividend spectrum auctions and the Digital Britain Broadband Universal Service Obligation requirement that the UK government has put on the table - all this points to a market consolidation. Observers say the UK could end up with 3 mobile operators and just 2 networks plus a couple of major MVNOs!
Analysis
T-Mobile UK has a solid 2G network, a 3G network that stills lags the other players and a large MVNO 'Virgin Mobile' using 30% of its network capacity. It recently entered into a JV company, MBNL Ltd with 3 (Hutchison Whampoa) for the future build out of 3G sites on a shared basis. In addition it has now entered into a network sharing agreement with Orange (France Telecom) for 3G sites.
All this detracts from the main problem, at 4th place its ARPU has dropped to £38.60, while its competitors are at £50 to £57 per customer. Yet it has nearly as many subs (16m) as each of its 3 main competitors.
As has already been made clear Deutsche Telekom has said it will sell it, fix it or merge it with another operator.
Vodafone and O2 lead the market in customers, ARPU and spectrum holdings. Both are well positioned when it comes to 2G Re-Farming as they hold valuable 900MHz spectrum which can be easily converted to 3G and deliver 3x efficiency overnight (in # of voice calls handled) and thus allowing 3G spectrum to be fully utilised for data. Further all 4 operators wish to access Digital Dividend spectrum at 800MHz for LTE and possibly 2.6GHz spectrum for LTE in metro areas.
This is a complex situation and it is not easy to predict the exact outcome but somethings are clear:-
T-Mobile UK has to solidify its future - merge or be bought
Vodafone or O2 wish to be the dominant market leader
Orange is holding back, branding and image seems to hold sway over market share
3 would benefit from a partner
Virgin Mobile needs a secure future for its MVNO
Where does this take us? For sure the spectrum wranglings will continue until at least 2012 when Digital Dividend finally happens. Network sharing will continue, O2 and Vodafone have now entered into a sharing agreement. Orange needs to rationalise its cost base and its deal with T-Mobile may help.
So the UK does not need 5 physical networks, 2 or 3 at most, T-Mobile has to either fix its ARPU collapse or quit the game. Vodafone (hq'd in UK) does not want Telefonica owned O2 being champion on its home ground. Orange, 3 and Virgin Mobile need a certain future, perhaps as a single network with 3 brands.
Finally the row over spectrum, whether Vodafone and O2 should give up some of their precious 2G spectrum continues. At the moment T-Mobile is one of the injured parties along with Orange. The outcome will be in the main dictated by the Independent Spectrum Broker's report in June '09.
