Bloomberg News

T-Mobile, Orange U.K. Merger Wins Approval From EU (Update3)

March 01, 2010

Deutsche Telekom AG (DTE) and France Telecom SA (FTE) won European Union approval to merge their U.K. mobile-phone units, after agreeing to share cellular networks and give up some radio spectrum for high-speed data services.

Without these remedies the deal could have threatened the “viability” of Hutchison Whampoa Ltd.’s (13) 3, the smallest U.K. mobile service, and may have eliminated it, the European Commission in Brussels said in an e-mailed statement today. The merger will create the U.K.’s largest cellular operator. In a separate statement, U.K.’s Office of Fair Trading said it is satisfied with the remedies.

“I am happy that we managed to resolve the competition issues in this case quickly in close cooperation with the member state concerned,” Joaquin Almunia, the EU’s competition commissioner, said.

Deutsche Telekom’s T-Mobile and France Telecom’s Orange will have about 43 percent of U.K. mobile subscriptions, overtaking Telefonica SA’s (TEF) O2 unit, the current market leader. The 50-50 venture will result in savings of more than 4 billion euros ($5.4 billion) in network maintenance, marketing and administrative costs, the companies said when the deal was announced in September.

The savings target “continues to remain the case,” Deutsche Telekom and France Telecom said in a joint statement today.

‘Pooling Resources’

“Now the way is clear for pooling our resources to create an outstanding high-speed mobile broadband network in one of the most competitive markets in Europe,” Tim Hoettges, chief financial officer of Deutsche Telekom, said in the statement. The two companies said they expect to close the merger “in spring.”

Telefonica spokesman Simon Lloyd and Vodafone Group Plc (VOD) spokesman Simon Gordon didn’t immediately return calls for comment.

The approval makes it “urgent for key competition and consumer issues to be addressed,” including the rates providers charge to connect calls from other networks and the system for moving numbers between operators, 3 U.K. Chief Executive Officer Kevin Russell said in an e-mailed statement.

The U.K.’s OFT initially asked EU authorities for national jurisdiction over the merger, a step requested by 3 and Telefonica.

‘Future Consolidation’

“A U.K. investigation could have been a lot worse” for T- Mobile and Orange, Will Harris, an analyst at Enders Analysis Ltd. in London, said by phone. “The fact that the commission concluded there are no direct concerns potentially opens the door for future consolidation in Europe.”

T-Mobile and Orange agreed to expand a network-sharing deal that allows 3 to use Deutsche Telekom’s cellular towers, two people familiar with the situation said Feb. 22.

The merging companies also offered to sell some of their combined wireless spectrum on a band that’s useful for transmitting data to smartphones like Apple Inc.’s iPhone, two people familiar with the situation said Feb. 17. Telefonica and 3 had called for the concession.

The commission said amending the network sharing agreement with 3 would “ensure that there remain sufficient competitors in the market.”

‘Combined Spectrum’

The EU agency said today’s decision is also conditional on “the divestiture of a quarter of the combined spectrum of the merging parties in the 1800 MHz band, which is one of three frequency bands currently used for mobile communications in the U.K.”

With five current mobile operators, Britain’s market has been more competitive than France and Germany, which have three and four full-service providers, respectively.

The two companies have agreed to retain both the T-Mobile and Orange brands.

The case shows “healthy engagement,” between Ofcom, the U.K.’s communications regulator, the OFT and the commission, Suzanne Rab, an antitrust lawyer at Hogan & Hartson LLP in London, said today in a phone interview.

To contact the reporter on this story: Matthew Campbell in Paris via mcampbell39@bloomberg.net.

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net


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