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Significant problems remain with two issues: control and branding. With partners' desire for equality, there is by definition no controlling shareholder. In absence of this, the JV agreement will stipulate, among other things, dividend policy with 90 percent to be distributed to shareholders. That will avoid the pickle that Vodafone is in with no cash flow from its 45 percent stake in Verizon Wireless in the U.S., but it is a recipe for management gridlock. Instead, agility is required. It is difficult to predict what the future holds and how the interests of the shareholders might diverge. Deferring the decision for 18 months on whether or not and how to consolidate brands reveals the JV is already having difficulties with the weightiest of decisions.
The competition authorities in the UK and Europe might attach some strings or at least undertake a thorough review prior to approving the JV. There is so much infrastructure sharing in the UK that competition might be affected. T-Mobile shares its 3G network with 3UK. Orange announced RAN sharing with Vodafone, although it seems only mast sharing has occurred. Instead, Vodafone and O2 are sharing infrastructure. These arrangements, including the provisions for folding them up, are the kinds of things the antitrust authorities will likely review. If the JV is allowed, it would be difficult to justify denying H3G, with around 7.5 percent market share, the right to be acquired by Vodafone or O2. This, however, would limit the market to just three network-based competitors.
The proposed new JV stirs memories of the sorry tale when FT and DT combined their international fixed service offerings to corporate customers in the mid 1990s. That old JV was named GlobalOne. DT and FT even arranged cross-shareholdings to consummate its partnership. It was actually a bit more complicated because Sprint also joined with a $3 billion investment by FT and DT. Within five years from start to finish the failed partnership was dismantled. Thankfully the strategic logic is much better this time in UK mobile.
The new mobile JV's integration will be a walk in the park in comparison to T-Mobile's rumoured desire to acquire Sprint in the US. Sprint is still floundering with the legacy of disparate mobile network technologies, brands, marketing strategies and organizational clashes with its acquisition of Nextel in 2005. Its diversification into WiMAX with Clearwire makes matters worse. Sprint Nextel is suffering massive customer losses while market leaders Verizon and AT&T are still enjoying significant additions. With its severely depressed stock price and market capitalization at only around $11 billion Sprint Nextel might go for a song; but there's no quick or easy fix, with or without T-Mobile USA.
Keith Mallinson is a leading industry expert, analyst and consultant. Solving business problems in wireless and mobile communications, he founded consulting firm WiseHarbor in 2007.
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