Deutsche Telekom’s T-Mobile and France Telecom's Orange are to announce they are in exclusive talks to form a joint venture, according to sources close to the deal.
Three sources told Reuters today that the two firms will announce as early as Tuesday that they are in exclusive talks on forming a venture. However the sources said the deal is not sealed yet.
The news follows rumours that bids by Vodafone and Telefonica for T-Mobile last week, valued at around £3.5 bn, were deemed too low by Deutsche Telekom.
Any merger of T-Mobile and Orange will come under close scrutiny by the Office of Fair trade. A joint venture would capture 37% of the UK market, compared to O2’s share of 27%, Vodafone’s 25 percent, and Hutchinson Whampoa’s 3 with 8 percent.
The news will cast a shadow over staff at both companies, as any joint venture will see departments merged and staff numbers slashed.
Phil Kendall, a global wireless director at Strategy Analytics said a merger would benefit Orange. ‘Orange is in a slightly weaker position compared to Vodafone and O2, so a joint venture would be good news for them. There is a certain amount of logic to it.’
Kendall said the new entity ‘will not stand out as outlandish in the European environment but it would go against the general desire to increase competition in the UK market.’ He added: ‘The market may be tough but that won’t wash with the regulators as operators are still making 30% margins in the UK.’