T-Mobile and Phones4U once again at heart of UK shake-up talks

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T-Mobile and Phones4U once again at heart of UK shake-up talks

By CAROLINE GABRIEL

Published: 29 June, 2009

READ MORE: UK | T-Mobile

Analysts have been expecting a shake-up in the crowded UK mobile market for ages, and now it may be coming closer, with merger speculation focusing once again on T-Mobile, as well as a possible battle to control retailer Phones4U.

According to a report by the London Financial Times, Vodafone is considering an offer for T-Mobile UK, which has been rumored to be up for sale since it was a major factor in poor quarterly results for its parent Deutsche Telekom. The most popular rumors have been about a merger between T-Mobile and 3 UK, to create an operator with greater scale to challenge market leader O2, but now Vodafone may be in the frame.

An acquisition would give the giant a 40% UK share, overtaking O2 (which has 27%, currently two percentage points ahead of Vodafone), and extending the lead on Orange, which has 22% share . Sources told the FT that a joint venture might also be an option, and could be a little easier to get past competition authorities.

The strength of O2, and the fact that one cellco has 40% share or more in other key European markets like France, Spain and Italy, could ease such a transaction past the regulators, analysts commented.

T-Mobile UK is estimated to have a value of about €3bn to €4bn. Vodafone CEO Vittorio Colao said in November that the UK market, the only major one in Europe to have five mobile carriers (plus BT threatening to re-enter, and strong MVNOs like Virgin) needed to consolidate to boost margins.

Meanwhile, the cellcos are said to be in a bidding war for Phones4U as they aim to improve the scale and control of their distribution networks - a motive that has already led Vodafone to call a truce with leading retailer Carphone Warehouse. According to Mobile Today, several operators are collaborating for a potential carve-up of Phones4U's 450 stores, direct sales and insurance assets. "There is either an elegant solution of everyone getting a share, or a more aggressive push to go alone," one bidder told the trade magazine. Talks between the retailer and Orange are said to have broken down late last year. Phones4U was sold to private equity firms Providence Equity Partners and Doughty Hanson for £1.46bn in September 2006.

The need to cut costs and increase profitability in the crowded UK is also driving a move to network sharing, and Vodafone and O2 have gone live with their first shared cell site, following the signing of a RAN sharing deal that they hope will save hundreds of millions of pounds over its 10-year life. The operators said it took 11 weeks, from planning to implementation, to take the site live, compared to nine months for a typical standalone site. Vodafone kit was added to an existing O2 site near London and a nearby Vodafone site will be closed soon.