2009 Year in Review: Cost savings trigger European consolidation

The announcement that two of the UK's largest operators--Orange and T-Mobile--could save around €4 billion by forming a 50:50 joint venture (or merger) illustrated that consolidation must now be on mobile operators' agenda in 2010 if they are to survive in an increasingly competitive European market.

The new UK company, as yet unnamed, is expected to generate revenues of €9.4 billion and EBITDA of €2.1 billion, lifting itself firmly into the #1 slot in the UK, and relegating Vodafone to the #3 position.

The leadership of the new company, which will have over 28 million customers, remains fudged by having Tom Alexander, currently CEO of Orange UK, as CEO and Richard Moat, currently CEO of T-Mobile UK, as COO. The two firms will operate separately for 18 months after which the new brand will be announced--hopefully not T-Orange.

Unanswered questions
While regulatory issues appear to be surmountable, the potential costs savings have been criticised by some analysts as being based on some far-reaching assumptions. The merger statement claimed that the Opex savings of €490 million per year from 2014 onwards were dependent on up to €880 million in integration costs over the period from 2010 to 2014, which relate mainly to the decommissioning of mobile sites, the rationalisation of the network of retail stores and the streamlining of operations.

Also, the merging of two very large companies--with hugely different cultures--will be fraught with difficulties. German organisational abilities might conflict with Gallic flair to produce an indigestible main course.

Related stories:
T-Mobile and Orange agree JV terms, huge costs savings promised
UK ripe for mobile network consolidation
Swiss networks to merge; France Telecom become majority owner
Vodafone results: Maintains guidance, hints at consolidation

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