T-Mobile UK set to announce merger with Orange

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The Independent Online

T-Mobile UK could unveil a merger with Orange as early as today, in a move that would create the largest mobile phone operator in the country.

The three biggest players in the UK – O2, Vodafone and Orange – have been in talks with T-Mobile's parent company, Deutsche Telekom, for the past two months.

O2 and Vodafone are understood to have been interested in tabling outright bids for the underperforming unit, which analysts valued at between £3bn and £6bn in June.

Orange, however, has maintained that it does not want to buy its rival, but was interested in a potential merger. René Obermann, the chief executive of Deutsche Telekom, has made it increasingly clear it favours the proposal by the France Telecom-owned company.

None of the companies involved would comment yesterday. However, industry sources said a deal was close, backing Orange as the favourites. One added that O2, owned by the Spanish group Telefónica, and Vodafone would not give up without a fight. The combined venture would control 38 per cent of revenues paid in the UK market and have about 30 million customers. O2 currently has 37 per cent of revenues, while Vodafone has 25 per cent.

Any deal is likely to be scrutinised by the competition authority, the Office of Fair Trading. However, analysts said that with five operators – including 3 – the UK is one of the most competitive in the world, and consumers were unlikely to lose out if one of the players was swallowed up. They also pointed to similar market share of lead operators in other European countries.

It first emerged that Vodafone had sounded out Deutsche Telecom with an informal approach at the end of June.

T-Mobile UK has underperformed the market for some time, and Deutsche Telecom was forced to write it down by €1.8bn earlier this year. It has been open to a deal following pressure from investors, which include the private equity house Blackstone and the German government, and appointed investment banker JP Morgan to advise, adding to speculation it was ready to sell.