Deutsche Telekom, France Telecom UK Merger

123jump.com Staff
08 Sep, 2009
New York City

Deutsche Telekom and France Telecom joint venture will lead the UK market in mobile subscribers. The merged company hopes that combining operations will lower network maintenance costs and keep customers loyal to their services.

[R]6:00 PM London – Deutsche Telekom and France Telecom joint venture will lead the UK market in mobile subscribers. The merged company hopes that combining operations will lower network maintenance costs and keep customers loyal to their services.[/R]

Deutsche Telekom AG and France Telecom agreed to form an equally owned joint-venture to merge their UK operations. The struggling T-Mobile operation of Deutsche Telekom has been rumored for months to find a buyer or a partner.

The two companies will stay in joint venture for three years and keep Orange and T-Mobile brands separate for eighteen months after the deal is finalized. The deal expected to be completed in October.

The companies are planning to spend between £600 and £800 million through 2014 to eliminate overlapping cell phone towers and retail locations.

The new joint venture with 28.4 million mobile customers will represent 37% of UK subscribers and will have pro forma 2008 revenues of 9.4 billion and operating earnings of 2.1 billion according to Deutsche Telekom.

The merged entity hopes to save by streamlining operations and eliminating network infrastructure of £3.5 billion or 4 billion euros.

UK mobile service market has been one of the most competitive markets in Europe but continental call rates are still one of the highest in the world. Most UK plans count the incoming calls in their minutes and charge exorbitant fees for international calls.

The combined company expects to save £445 million a year from 2014 but companies will have to spend at least for five years between 2010 and 2014 between £600 million and £800 million. Between 2010 and 2014, the company expects to save £620 million in capital expenses and £100 million from 2015.

The joint venture will have £1.25 billion in debt equally divided between Deutsche Telekom and France Telecom as two shareholder loans.

The transaction is expected to be cash flow accretive from 2010 and earnings accretive from 2011.

The merger is not likely to change the competitive landscape in the industry but may lower some of the rates as the European Union has required from 2010 onwards.

Deutsche Telekom closed up 2% at €9.63 in Frankfurt and France Telecom closed at 1.8% to €18.44.