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As the runt of the mobile litter, 3 will not survive

AND then there were three. Or at least there will be, because Hutchison Whampoa&rsquo;s 3 will find it extremely tough to survive following the merger of T-Mobile and Orange in the UK. That would leave what analysts are dubbing &ldquo;T-Orange&rdquo;, with a 37 per cent share of mobile revenues in the UK, O2 with 27 per cent and Vodafone with 25 per cent.<br /><br /><strong>RUNTOFTHELITTER</strong><br />3 would be the runt of the litter with just eight per cent of the UK market, a share that will make it impossible to compete with the big guns. It could sell up to Vodafone, which is surely reeling from being relegated to third in its home market, exit the UK altogether or become an MVNO &ndash; a brand that piggy backs on a bigger competitor&rsquo;s network by paying with a cut of its revenues.<br /><br />Vodafone might be licking its wounds now that it has become the underdog in a market it dominated until as late as 2006 &ndash; but snapping up 3 is not the answer. Analysts say that 3&rsquo;s customers are much less profitable than its rivals, a symptom of years spent undercutting competitors in a bid to stay relevant. <br /><br /><strong>EMERGINGMARKETS</strong><br />Already the world&rsquo;s biggest network operator by revenues, Vodafone would likely find more shareholder value by continuing to win business in emerging markets, where competition is scarce and margins higher. Even after this period of consolidation, the UK will remain one of the most competitive markets in the world.<br /><br />A more transformational deal in the UK, mooted by Emeka Obiodu of Ovum, would be some sort of tie-up between Vodafone and BT. That would create the kind of fixed and mobile telecoms giant &ndash; like Spain&rsquo;s Telefonica and France Telecom &ndash; that the UK has never had.<br /><br />It would also restore BT&rsquo;s sorely-missed presence in the mobile space, and would surely be a force for reckoning. That said, if competition authorities think the &ldquo;T-Orange&rdquo; deal needs scrutiny, they would have a field day with a Vodafone / BT joint venture.<br /><br />O2 will not emerge unscathed from the tie-up of T-Mobile and Orange either, especially if it loses its exclusive contract as the network operator for the Apple iPhone in the UK, as analysts expect. Orange and T-Mobile, whose parents France Telecom and Deutsche Telekom already partner with Apple on their home turf, clearly think they have a good chance of securing the handset now that they have a 37 per cent market share in the UK.<br /><br />Whatever happens, the &ldquo;T-Orange&rdquo; deal will inject some excitement into a mobile market that has become stagnant in recent years. Sadly for 3, it will be unable to participate. Its best option is to cut and run.<br /><br />david.crow@cityam.com<br />