T-Mobile and Orange: what colour is the future?

T-Mobile and Orange: what colour is the future?


Tremors were felt across the industry last week when T-Mobile and Orange announced the merger that will change the mobile landscape forever.

The repercussions are far reaching. Not only will there be just four operators competing for share, but the move will affect retail, manufacturers, distribution, network share and MVNO deals – and Digital Britain.

The deal will create the UK’s largest mobile operator with 37% market share and 28.4 million customers – 10% more than nearest rival O2.

Granted, the timeline outlined by chiefs of both companies is not firm. The initial signing will take place in November, followed by an examination by the competition authorities that could take another 18 months. Then the brands will need to be realigned.

Orange CEO Tom Alexander and T-Mobile MD Richard Moat will eventually become CEO and COO of the new company respectively, and will face a challenging few months.

They are already involved in tough negotiations regarding spectrum allocation ahead of an auction in 2010. The new deal could throw an elephant-sized spanner in the works.

One of the most talked about elements of the move is what form the brand will take. Some have suggested an Orange ‘premium’ brand for high-end phones, and a T-Mobile ‘value’ brand.

Moat tells Mobile: ‘There will be a period now until the signing and then one going to the competition authorities.

‘The brands will run in parallel, and then new brands will be created. Tom and I have discussed a “Powered By” brand to take the business forward.’

Alexander adds: ‘The objective of this is to get a good customer experience. That’s why we are looking at a “Powered By” umbrella brand or sub-brand that will come through to Orange and T-Mobile. There will be more than one umbrella brand.’

Although the newly merged company will have the largest share by far, it will still need to retain customers, who could be tempted by aggressive marketing and competitor deals from rivals O2 and Vodafone, which will be keen to drive up share.

Moat says: ‘We are going to be the market leaders and have the best coverage for customers on 2G and 3G in the UK. Plus we have the existing joint venture with 3. Upcoming handsets will be multimedia and this will support them. Orange is highly regarded for 3G and T-Mobile has won awards for mobile broadband.’

But will the merger also give the two networks the opportunity to lower prices? Alexander says: ‘What we are looking at doing is giving customers better service and better costs. We will have a much better network and this will give us scale.

‘The initial stages could take some time. The first stage [before the signing] runs though until the end of October. Following that, we will go to the competition authorities – this could run until 2010,’ says Moat.

‘We will operate as two separate brands until then. There will be constraints from a legal perspective that we will have to abide by.’

When Moat joined T-Mobile, he had a vision of creating a low cost operator, which he says will remain the case. He adds: ‘We developed a new strategy for the business when we were a separate entity. The joint venture will go down the same route, but we need to craft a number one strategy.

‘We each have strong brands and at the moment, it is business as usual. We want to retain our customers and make them understand what is happening.’

Bigger stores
On the retail side, it is thought that the joint venture will look at removing duplicate stores; however, Moat and Alexander argue that this could make way for bigger stores, combining the two brands.

Alexander says: ‘We have something approaching 700 stores. We must decide what we are going to do, but we are not necessarily going to decide on store closures.’

He adds: ‘We are looking at two brands with a multi-brand strategy, and a balance of direct and indirect. We will have the best footprint of shops in the best locations, and will also provide the best service.’

However, he admits: ‘Where it doesn’t make sense to have a store, it would be crazy to keep one.’

Moat says: ‘We may expand the size of stores where we have two – but it is too early to say.’

The number of jobs to be cut is still unknown. Moat says: ‘In the context of retail, it is very early to make specific comment.

‘We will internalise functions that were outsourced and remove contractors before we look at head count. The combined workforce is 19,000. We can’t say how synergies of £3.5bn will impact on that. There is a £20m saving on capital expenditure, one third is saved on network expenditure, and one third on admin.’

Multimedia handsets
Although there has been speculation over the 3 and T-Mobile network share, Mobile Broadband Network Limited (MBNL), it has also been argued that the deal will be good for 3 as it will give the network more scope.

Moat says: ‘The joint venture with 3 will still go ahead. We spoke to [3 CEO] Kevin Russell yesterday and he was very happy about it.’

A question mark does still hang over Virgin Mobile though, with some saying its MVNO deal with T-Mobile could be used as a bargaining tool to placate the competition authorities.

Alexander says: ‘It might be worth saying, from my past at Virgin Mobile, we saw T-Mobile as a competitor. This is the same now.’

Moat adds: ‘It would not be good for them [to break the deal]. Virgin Mobile has said it approves of the merger.’

And how will this affect the networks’ relationship with manufacturers and distributors? Alexander says: ‘We will be even more attractive for multimedia devices. People have suddenly woken up to the fact that it is not just about text. There will be big, long-term investments.’

The iPhone will certainly be a customer generator for both companies. They are understood to soon be distributing the device, and a bigger merged company would be even more attractive to Apple. However, Alexander says: ‘I can’t comment on that.’

Spectrum bid
One of the widest-reaching issues is the allocation of spectrum. There is due to be an auction next year, before the merger has completed, that could see the two companies bid together or apart. But, if they bid apart, ?they could be seen to have an unfair advantage over the other three networks.

Alexander says: ‘The auction and refarming is nearing an end. Our deal being cemented is open ended. We could bid apart or we could bid together.’

He says that talks over spectrum have nearly reached a solution, adding: ‘All the scenarios have been thought through.’

For the time being, it is ‘business as usual’ for Orange and T-Mobile. However, the two companies, and the rest of the industry, will have a tough period ahead before the dust finally settles. 


Timeline for the merger
The two companies are hoping the merger will complete in six weeks.

After this period, the Office of Fair Trading (OFT) will take an ‘initial look’ at the plans.

If the OFT finds any evidence of competition issues, the case can then be sent to the Competition Commission for a full investigation.

If the two companies are found to have an unfair advantage in Europe, The European Union (EU) may investigate.

If and when the merger completes, it will take a further 18 months after it has been agreed by the relevant authorities.

The Competition Commission states that issues can arise if a merged company has more than 25% market share. At 37%, the new company could be investigated.

Written by Mobile Today
Mobile Today


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