Vodafone ready to call T-Mobile to form UK’s No 1 telecoms group

Tuesday, June 30, 2009

Vodafone is considering buying T-Mobile UK in a deal that would create Britain’s biggest mobile phone operator.

T-Mobile is a comparatively small player in the fiercely competitive and low-margin British market. Valued between £2.5 billion and £3.4 billion, it commands a market share of only 15 per cent compared with Vodafone’s 25 per cent. Deutsche Telekom is thought to want out of the British market, which, with five big companies, is more congested than most in Europe.

T-Mobile and Vodafone declined to comment last night. However, one source close to the situation said that Vodafone was examining its options.

A joint venture or an outright acquisition are among the options on the table, although regulators would have to approve any deal. As well as being bound by normal competition rules, the industry is regulated by Ofcom, which is investigating the charges that operators levy customers for connecting to other networks.

Some analysts believe that consolidation is likely, with competition watchdogs accepting precedents from continental Europe, where there are fewer dominant players in the market. Vodafone has stated in the past that it is on the lookout for opportunities for consolidation. It merged its business in Australia with Hutchison Whampoa in February.

Suggestions of a takeover of T-Mobile are among the latests signs that Vittorio Colao, who became chief executive last July, plans a fundamental reshaping of the group. Last week it emerged that the group was to move its from its headquarters in Newbury, Berkshire, to modern offices in Paddington, Central London.

Vodafone had been based in Newbury for more than 20 years, since its days as Racal Electronics. The company said that the move was not financially motivated.

Mr Colao said that he was an “active supporter” of consolidation, with T-Mobile, the No 4 in Britain, and 3, the fifth-largest operator, often being mooted as the likely targets. Mr Colao said last month: “I don’t know if there is a three-way [merger], I don’t know if there is a two-way, I don’t know if there is a way at all — but it is clear to me that there are a few markets around the world where consolidation would make sense and we are one of the leading players, so we have a duty to look at everything. If things make sense and improves the conditions in the market, we will try our best.”

Vodafone announced a fresh wave of costcutting last month after nearly £6 billion of writedowns halved its full-year profits to £3.08 billion. It is the world’s largest operator, by revenue. It wrote down the value of its Spanish business by £3.4 billion and took a £500 million hit on its Turkish division as the global downturn and increasingly tough competition took their toll.

This story was featured on The Times Website.

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