Vodafone's options and challenges to take T-Mobile

Vodafone's options and challenges to take T-Mobile

There are three routes Vodafone could take for a deal with T-Mobile:
Joint venture Former Vodafone UK CEO Nick Read instigated the merger between Vodafone and 3 in Australia earlier this year as his first major move in his new Asia-Pacific role. That was a relatively straightforward deal as both parties were similarly sized. In the UK, Vodafone has a 25% share, while T-Mobile has 15%. A deal would involve Vodafone having a majority shareholding in T-Mobile, with the intention of buying out Deutsche Telekom’s share at a later date. This proposal ultimately hinges on the timing of the exit for both parties. Deutsche Telekom may feel it wants to stop the decline now, but wants an exit in a more favourable economic climate.

Buyout Deutsche Telekom is interested in trying to resuscitate another of its ailing divisions: T-Mobile USA. A sale would give it the firepower and focus to make a concerted bid to take on Verizon and AT&T in America. For Vodafone, it has a cleaner option to start integrating T-Mobile’s operations, cutting out its head office, remaining customer service units, systems and processes and even stores. It also brings Vodafone more customers who are making ‘on-net’ calls, so not incurring termination fees.

Asset swap Among Vodafone’s other divisions of concern is Turkey. The Turkish unit has a similar value of T-Mobile UK: £3bn/£4bn. City sources claim Vodafone is keen to offload its Turkish business after a series of problems, while T-Mobile has considerable interests in Eastern Europe and is looking at the region as a whole for growth. Turkey could be a natural fit, and offer an option where Vodafone doesn’t need to generate the cash. The question here is why Deutsche Telekom stands a better chance of challenging the Turkish incumbents than Vodafone.

The deal faces obstacles in the form of Ofcom as well as both UK and European competition and regulatory authorities. Given that many European markets have an incumbent with over a 40% share (the level a combined Vodafone-T-Mobile unit would represent), it is unlikely it would present significant hurdles.

Any deal would immediately be a matter for the Office of Fair Trading (OFT) in the UK, who would seek advice from Ofcom. Ofcom will be guided by whether they feel a deal would undermine competition in the
mobile market.

Critics will argue that a Vodafone-T-Mobile merger or acquisition will remove choice for consumers, especially if there is further consolidation.

Operators have responded with the threat that they will find it harder
to justify investing in the UK for things like 4G technology if prices continue to fall.

Another factor is network share. Vodafone is already involved in an agreement with O2 to share sites, while T-Mobile is further along with a deeper infrastructure sharing project with 3. Experts say unravelling these operations or finding an even more efficient solution is not insurmountable.

Questions also remain on the repercussions of the deal for Vodafone. There is a danger that T-Mobile will continue to shed customers, even after an acquisition, and possibly at a faster rate, eroding the value of the T-Mobile base that Vodafone would have acquired.

Finally, there is the matter of Vodafone’s rivals. There is considerable speculation inside the mobile industry and the City that this week’s speculation is just the start. O2’s parent company Telefónica could make a rival bid to extend O2’s lead in the UK.

There is also a belief that O2 could bid for 3, or 3 and T-Mobile could pursue a joint venture of their own. There is further speculation that Orange could buy Virgin Media, taking the cable broadband infrastructure to make some serious clout as a complete communications player.

One thing is for certain, the plotting and speculation has only just started.

Written by Mobile Today
Mobile Today


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