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Vodafone’s next UK move: is it germane? |
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Tuesday, 30 June 2009 |
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T-Mobile link-up could consolidate home market, but…
Reports have Vodafone – billed as the world’s largest mobile phone company – eyeing a JV with, or takeover of, German-owned T-Mobile’s
UK
subsidiary. In the latter eventuality, a price tag of anywhere between £3bn and £6bn has been mooted, although sensible folk are looking at the very bottom end of this range. If a takeover went ahead, it would drive consolidation in the somewhat fragmented
UK
mobile sector, and create the country’s largest operator, with around 40% market share.
Not everyone thinks this is a go-er.
Here’s part of the take on the potential deal from Emeka Obiodu, mobile senior analyst at Ovum: “Despite the potential strategic advantages, this is not a case of a square peg in a square hole. Firstly, why should two seemingly underperforming businesses merge? In Q3 2008, Q4 2008 and Q1 2009, Vodafone and T-Mobile suffered revenue declines whereas O2 and
Orange
grew theirs. Would two businesses with declining revenues suddenly turn a corner? In addition, while Vodafone is doing alright in adding new customers, T-Mobile is loosing customers. It has lost customers on a year-on-year basis in the three quarters since Q3 2008. So can Vodafone be certain that it will have T-Mobile's entire customer base when a deal is completed? Or will it pay for a vanishing customer base?”
Obiodu continues: “Then there is the network sharing palaver. T-Mobile has a deal with 3 whereas Vodafone has a deal with O2. How will these unravel? And will these present an octopus due diligence scenario? In other words, would Vodafone be bogged down with integrating T-Mobile's business? Consumers have nothing to worry about. While the elimination of T-Mobile should in theory affect competition, in reality, Ovum does not see any major risks nor benefits to consumers. Even without 3, the
UK
will still have three large and viable operators, about the same as in many European markets. Besides, a Vodafone T-Mobile combination would not approach the Holy Grail 50% market share (which KPN has in the Netherlands) which is anathema to EU policy makers.”
“A deal raises questions and a cascade of options. A potential deal begs the question - why is Deutsche Telekom selling
T-Mobile
UK
few weeks after installing new management? Do they really expect to get a good price in a recession? Then the next question is - what happens to 3
UK
? Surely they can not survive in direct competition to Vodafone, O2 and
Orange
,” offers Obiodu as more food for thought. “Interestingly, the deal flags up issues about the future of network infrastructure in the mobile industry - a theme Ovum are currently developing. Given that T-Mobile and 3 share networks while Vodafone and O2 share theirs, how would a deal affect Ericsson which is running almost 80% of the UK mobile network?If that were to happen, how much longer will it take for the mobile industry to coalesce on a single network - akin to the electricity and gas networks?
So German might not be germane here then.
John Williamson |
