ANALYSIS: T-Mobile and Orange put consolidation and buy-out rumours to rest today, after agreeing a merger which will make their joint venture the biggest mobile operator in the UK with some 37 per cent of the market.
Consolidation had long been expected in the market, according to Gartner analyst Katja Ruud. "The market in the UK was a little overpopulated, one could argue," she told IT PRO.
"And it was no secret that T-Mobile had acknowledged its UK operation was under distress," she said, adding its parent firm Deutsche Telekom had been trying to sell it outright.
While consolidation was expected, this particular deal was a bit surprising, noted IDC's European mobile research director John Delaney. "But no-one saw this coming or if they did, they kept very quiet about it."
Market change
According to Ovum analysts Emeka Obiodu and Steven Hartley, very little is likely to change in the short term - but it will have mix things up in the long term. "[A]ssuming the deal goes through without a hitch, it does realign the UK competitive landscape," the analysts said in a statement.
The other operators will have to respond especially smaller player 3.
"Unsurprisingly, 3 will be the most affected as the merger cuts it adrift in the market," said the analysts. "With a market share of less than six per cent it would become too small to compete realistically and would have to reconsider its presence in the UK, either by becoming an MVNO (mobile virtual network operator) or exiting the market."
The merger will also knock Vodafone into third. "Even a takeover of 3 will not be sufficient," Hartley and Obiodu said.
Larger players O2 and even Virgin Mobile face less damage. The former is well placed regardless of the fact it has lost its market leadership - though it might be encouraged to tie-up with BT - while Virgin will simply have to work with new partners.
Will it be approved?
The analysts expected the deal to be approved without much trouble, although a spokeswoman from Ofcom said the telecoms watchdog expected the Office of Fair Trading and the EU to take a close look.
While a 37 per cent market share may sound like a big slice in the UK, its common across Europe.
"[T]here is plenty of recent European precedent for in-country mobile consolidation," noted IDC's Delaney.
"It's not creating a dominate market provider," agreed Ruud, adding that the significant increase in market share may lead regulators to put conditions on the deal.
Regulators will most likely focus on the two firms' partnerships, the Ovum analysts said. "Regulators will have to look at the Virgin Mobile wholesale deal with T-Mobile and T-Mobile's network-sharing deal with 3," Hartley and Obiodu said.
"We expect the Virgin Mobile deal to be decoupled Orange/T-Mobile tacitly suggested this by separating out Virgin Mobile's customers in their subscriber data," they added.
The analysts predicted T-Mobile's network sharing deal with 3 would continue, unless the smaller operator is taken over.
IDC's Delaney expects regulators to try to help out the smallest operator. "We may see steps to boost the position of 3, in order to compensate for the removal of the other UK operator that has behaved as a maverick' competitor on pricing in recent years [as in] T-Mobile," he noted.
The Ovum analysts concluded the deal was likely to bee seen as positive for the market. "Competition is good for consumers, but with five major players the UK operators were competing themselves to death and badly needed to consolidate."
Gartner's Ruud agreed the deal won't hurt customers, saying she didn't "expect price erosion to stop."
Rival operators
Vodafone had no comment on the deal, but the other two major providers were slightly more forthcoming.
An O2 spokesperson said: "We will watch developments with interest. Meanwhile our focus is business as usual. Giving O2 customers a great experience remains our key priority."
A 3 UK spokesperson echoed those thoughts: "We look forward to seeing how the negotiations develop. Our network infrastructure joint venture with T-Mobile inevitably makes us an interested party."
However, the 3 spokesperson added: "The prospect of fewer operators highlights the need for clear action on consumer competition issues such as mobile termination rates and mobile number porting."
