T-Mobile and Orange set to merge in UK

DEUTSCHE Telekom and France Telecom were last night finalising a deal which will see the firms merge their UK operations, toppling O2 from its position as market leader.<br /><br />After months of intense speculation about the future of its UK subsidiary, T-Mobile UK, Deutsche Telekom is likely to announce the merger with France Telecom&rsquo;s Orange before the market opens today, although the deal could still come unstuck.<br /><br />Despite having 16.6m customers, T-Mobile UK has struggled in the highly competitive mobile market.<br /><br />But the joint venture &ndash; in which the firms will likely take a near 50-50 stake &ndash; will have a combined customer base of 32.5m and a 36.4 per cent market share of revenues, giving it a clear advantage.<br /><br />A merger is likely to draw the attention of the Office of Fair Trade (OFT), which looks at all deals that create an entity with over 25 per cent market share, and by the European Commission, which is committed to driving the price of mobile calls down.<br /><br />It is understood that Vodafone and Spain&rsquo;s Telefonica, the owner of O2, have tabled conditional offers of around &pound;3.5bn to buy T-Mobile UK.<br /><br />But analysts said that Deutsche Telekom chief executive Rene Obermann would be reluctant to sell at &pound;3.5bn &ndash; which would result in a second writedown on the value of the unit &ndash; and would prefer the tie-up with France Telecom, led by chief executive Didier Lombard.<br /><br />Analysts have been divided over the merits of a joint venture or a straight sale, with some arguing that a joint venture could be complicated unless one group takes control. Others have argued that an outright sale would be hampered by difficulties in valuing the unit in the current climate. <br /><br />Deutsche Telekom was forced to write-down &pound;1.6bn on T-Mobile UK, and hired JP Morgan earlier in the year to sound out potential investors. <br /><br />It also recruited ex-Orange veteran Richard Moat to head up T-Mobile UK, fuelling speculation that a tie up between the two firms was on the cards.