T-Mobile/Orange merger in UK gets rapid approval

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T-Mobile/Orange merger in UK gets rapid approval

Should become a single entity by spring, but companies must divest 1.8GHz spectrum and rework RAN sharing

By CAROLINE GABRIEL

Published: 2 March, 2010

READ MORE: M&A | UK | T-Mobile | Orange | Regulator

Deutsche Telekom and France Telecom have received unexpectedly rapid approval for the plan to merge their UK mobile arms, forming the country's largest cellco. They received the green light from the European Union after agreeing to divest some spectrum.

The companies now expect T-Mobile UK and Orange UK to become a single entity "probably by spring", overtaking market leaders O2 and Vodafone in terms of subscriber numbers. The 50:50 joint venture will have market share of about 37%, a figure which had been expected to spark antitrust fears, but which is actually lower than the share of mobile leaders in some other EU countries, particularly former incumbents. The fifth UK player is 3 UK.

Among the conditions of approval are "the amendment of an existing network sharing agreement with 3 UK, to ensure that there remain sufficient competitors in the market", the European Commission said. The other main requirement is the sale of 25% of the two firms' combined spectrum in the 1.8GHz band.

Based on these commitments, the UK Office of Fair Trading has also withdrawn its request to the EC to review the planned merger, saying it was satisfied with competition remedies. This review would have significantly delayed the transaction and given the larger players more time to prepare for the changed landscape. Vodafone, in particular, is now expected to unleash a major marketing campaign and revamp of its UK services, though it is not expected to appeal against the merger.

Ronan Dunne, CEO of Telefonica-owned O2 UK, welcomed the ruling on 1.8GHz. "We are pleased that the European Commission has taken steps to address the significant competition issues arising from the concentration of 1.8GHz spectrum, although we await the precise detail of how the spectrum remedy will operate in practise," he said in a statement. "It's crucial to get this right. The spectrum needs to be made available to the market in a way that promotes competition for next generation super fast mobile broadband."

There are many complex spectrum issues to be addressed in the UK, including the long dispute over whether O2 and Vodafone, the only holders of 900MHz GSM spectrum, should be forced to share this with the other operators in advance of plans to allow refarming - or should be barred from bidding for digital dividend frequencies around 800MHz without divesting some of the GSM licenses.