FT, DT deal a template for the future

A joint procurement deal between France Telecom and Deutsche Telekom is a sign of things to come for Europe’s telecom market, Informa Telecoms & Media analyst Thomas Weimer says.
The analyst believes similar consolidation deals among other major European telcos are inevitable, but notes that deals are likely to follow similar lines to the collaboration between the French and German incumbents rather than result in a raft of full blown mergers.
“Europe’s mobile telecoms industry has just turned thirty and is growing up. As the industry matures, it’s starting to look outside the borders of the telecommunications sector to understand how other industries have gone through that same process of growing up,” Wehmeier notes.
He says the automotive industry is the best marker for telcos, as “strategic procurement deals of this type have long since been common place,” in the car industry.
However, the main driver of future deals for telcos will be the potential cost savings. France Telecom and Deutsche Telekom estimate their procurement joint venture, announced yesterday, will save them a total of €1.3 million within three years, through technology harmonization and economies of scale.
Wehmeier points out the deal only covers 66% of the telco’s combined annual spend, meaning there is “scope for additional synergies further down the line.” The benefit for consumers should come through greater investment in next-generation mobile broadband networks and a broader range of smartphones, which can be brought “to market faster and, potentially, at lower cost.”
The deal covers the purchase of 45 million handsets annually, Wehmeier says, but he doesn’t expect an immediate impact on current contracts because the joint venture won’t be operational until 4Q11 and will then take time to review existing deals.
France Telecom and Deutsche Telekom admitted they were exploring a collaboration in February in a bid to cut costs across the board, and Wehmeier says the deal could be the first of many.
“The deal is very much a sign of the times. Europe’s largest operators have been cosying up to one another more and more as they seek to strengthen their hands at a time when competitive pressures have emerged from an increasingly diverse range of players, most notably from players based out of Silicon Valley and China.”
His view is borne out by Irish incumbent Eircom, which recently agreed the country’s first major network sharing deal with Telefonica’s local O2 subsidiary, to cut costs and speed deployment of next generation networks.