LONDON - Deutsche Telekom AG, Europe’s biggest phone company, and France Telecom SA plan to merge their UK mobile-phone units to create the country’s largest cellular operator with revenue of $13.5 billion.
The companies entered exclusive talks to combine Deutsche Telekom’s T-Mobile UK unit and France Telecom’s Orange and plan to seal the deal at the end of October. The 50-50 venture will result in savings of more than $5.7 billion in network maintenance, marketing, and administrative costs, the companies said.
The joint venture will have 28.4 million users, or 37 percent of the UK market, ousting Telefonica SA’s O2 service from the top spot. The deal shrinks the number of mobile-phone operators in the United Kingdom to four, with the others being Vodafone Group PLC and Hutchison Whampoa Ltd., helping shore up profit in one of the most competitive markets in Europe.
“Investors are clearly relieved that the companies have found a solution to cut costs and improve their position in the crowded and competitive UK market,’’ said Boris Boehm, a fund manager at Aramea Asset Management AG in Hamburg. “Both companies had problems competing on a standalone basis, so this deal makes sense.’’
Phone companies are reducing costs as clients spend less amid the economic slowdown. Vodafone, Deutsche Telekom, Royal KPN NV, and Mobistar SA said in May the recession was eroding profit as consumers curb mobile-phone use.
For Deutsche Telekom, the fourth out of five operators in the market, the deal provides a way to draw on the combined entity’s dominant position. Earlier this year, it booked a write-down of $2.6 billion on T-Mobile UK and said the unit’s performance was “dissatisfactory.’’
“This combination of the current number three and number four players will create the new number one player,’’ Deutsche Telekom chief financial officer Timotheus Hoettges said. “This gives us a significant lead ahead of our competitor, providing us with the critical mass that we need in the UK market.’’
For France Telecom, the transaction is the first major venture after it ended a $34 billion bid for Sweden’s TeliaSonera AB in June 2008 over price disagreements.
The two companies have committed themselves to staying in the joint venture for at least three years, keeping their separate T-Mobile and Orange brands for 18 months after the deal is completed.
