Euro Telecom Giants Mega Merger

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Euro Telecom Giants Swap Numbers, Agree Mega Merger

by Martin Denholm, Senior Editor

It’s Friday night…

French telecom firm Orange is standing at one corner of the bar, sipping a fine Bordeaux. Its German rival T-Mobile is propped up at the other, slugging down a hearty Hefeweizen.

Their eyes lock. The deal is on.

Before you know it, the two have swapped numbers and arranged to get together.

That’s the deal that has the European telecom sector buzzing at the moment, as Deutsche Telecom’s T-Mobile and France Telecom’s Orange have agreed to merge their British operations.

The result is a veritable cellular beast, boasting 24.8 million customers, vaulting it to the top of the pile in the U.K. and knocking Telefonica’s O2 into second place. The T-Mobile-Orange partnership would own almost 40% of the British mobile market and bring together two firms with combined annual sales of 9.4 billion euros ($13.5 billion).

The T-Mobile-Orange Triple Challenge

While the deal is expected to be completed in November, just in time to capture the busy holiday season sales, it could take up to 18 months for the two to become one, as complicated branding issues are worked out.

As the market leader, however, the Orange name is expected to live on, according to the BBC, with Orange UK CEO Tom Alexander taking the reins and T-Mobile’s British chief, Richard Moat, sliding into the COO role.

Naturally, the press release contains lots of bold promises about better network quality and coverage, plus enhanced customer service. The latter will need the most work, given that both firms rank at the bottom in this area.

But given the size of the deal, it’s likely that British and European regulatory authorities will first make sure that it doesn’t violate any antitrust rules and give the new firm an unfair advantage over its rivals. In addition, there are fears that the merge and new company’s elevation to #1 status in Britain could result in price rises for customers.

In addition, the two firms’ tech geeks will probably need to get their heads together and design the one thing that they’re both lacking at the moment: A killer phone that can rival Apple’s (Nasdaq: AAPL) iPhone or Research In Motion’s (Nasdaq: RIMM) Blackberry (which is commonly referred to as the “Crackberry,” given its addictive nature).

And now for the personal impact behind this new telecom juggernaut…

Translating The Corporate Double-Speak

“Efficiencies.”

Don’t you just love corporate waffle? Just say what you really mean: Cost cuts and job losses.

The companies may think that choosing the word “efficiencies” is very clever and vague, but it just makes them look lame.

And I don’t imagine it makes the 19,000 combined Orange and T-Mobile employees in Britain feel so good. But they’ll have to wait and worry before they find out if they’ll keep their jobs.

Overall, though, the cost to merge the two firms is expected to cost between £600 million and £800 million ($951 million to $1.2 billion), with a £3.5 billion ($5.5 billion cost saving as a long-term result of the marriage.

Ultimately, the deal should prove productive for both firms. It brings together the third and fourth-largest U.K. mobile operators (Orange has a 22% market share, while T-Mobile sports just 15% and the deal should boost its struggling British business). It allows both to strengthen in a cost-efficient way – without paying cash to directly buy out a rival, nor racking up debt.

Martin Denholm

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