Orange, T-Mobile Seek Merger Approval from European Commission

European telecom giants Deutsche Telekom (DT) and France Telecom (FTE) have reportedly filed their appeals to the European Commission for approval of the proposed merger of their UK units in a 50-50 joint venture.

The European Commission will review the merger proposal and is expected to provide an initial ruling in February 2010. If eventually approved, Deutsche Telekom’s British subsidiary T-mobile UK will combine with France Telecom’s Orange UK in a historic merger (expected to conclude by mid 2010).

Moreover, the UK competition authorities are currently considering a potential investigation of the said merger as consumer groups are increasingly concerned about the impact of the deal on the competitive scenario in the UK mobile market.

The companies announced their merger plans in September 2009. In the proposed merger, Deutsche Telekom will contribute T-mobile UK including the unit’s 50% stake in the 3G wireless joint venture with Hutchison while France Telecom will also add its UK broadband Internet business besides the wireless operation.

The British mobile market is one of the fiercely competitive markets in Europe. Currently, Spanish telecom giant Telefonica’s (TEF) UK subsidiary O2 leads the market with an approximately 28% share. Vodafone (VOD) and France Telecom’s Orange are the second and third largest operators with 24.7% and 21.5% share, respectively. T-Mobile UK is the fourth largest operator with approximately 16.6 million subscribers and roughly 15% market share. However, the unit contends with declining profit and subscriber erosion.

The merger of T-mobile UK and Orange UK, which will reduce the number of operators from five to four, will radically change the competitive landscape in the British mobile market. The combined entity would dethrone Telefonica’s O2 UK as the largest wireless operator in the UK with roughly 37% market share and a cumulative subscriber base of approximately 28.4 million.

The combination of T-mobile UK and Orange’s network assets will create significant cost synergies which may exceed €4 billion ($5.7 billion), mostly through reduced operating and capital expenditure. The consolidated entity with greater scale, larger coverage markets and distribution network will operate and compete more efficiently while sharing the expenditure associated with future network upgrades.