Calls for probe of telecoms tie-up

Consumer groups are calling for an investigation into plans by France Telecom and Deutsche Telekom to merge their UK mobile businesses, because of fears that the tie-up could damage the quality of phone services.

Which?, the consumer magazine and campaigning organisation, said a merger of France Telecom's Orange UK and Deutsche Telekom's T-Mobile UK could have a negative impact on customer satisfaction.

Lawyers are also warning that the proposed deal faces intense scrutiny by regulators because it would result in reduced competition.

A joint venture between Orange and T-Mobile would be the market leader, with a 37 per cent share of revenue paid by British mobile phone users. O 2 is currently the largest network operator, followed by Vodafone, Orange, T-Mobile and 3.

However, surveys by Which? have found that companies that provide mobile services but do not have their own network infrastructure are securing the best customer satisfaction ratings.

Tesco Mobile and Virgin Mobile, which are known in the industry as Mobile Virtual Network Operators because they do not own infrastructure, came first and second in an April customer satisfaction survey of pay-as-you-go packages. Virgin Mobile, part of Virgin Media, came top in a survey of packages involving monthly contracts.

John Holmes, economist at Which?, said that following consolidation, MVNOs would have less choice when it came to selecting wholesale partners. Virgin Mobile, which was the world's first MVNO when it began services in 1999, uses T-Mobile's network.

Mr Holmes said: "If there are fewer networks for the MVNOs to bargain between, they might find they are not able to offer the sorts of deals putting them at the top of our satisfaction tables." He also expressed concern that consolidation could lead to less transparency over mobile tariffs, which in the past have been opaque.

Mr Holmes said the UK competition authorities, rather than the European Commission, should investigate the merger plans involving Orange and T-Mobile, because they were best suited to look at the British market.

Like Which?, Consumer Focus, another consumer campaigns organisation, is concerned that consolidation could slow the rate of decline in the price of mobile tariffs.

Audrey Gallacher, head of company performance at Consumer Focus, said: "We have concerns about consolidation of the mobile phone market into a smaller number of players. There is a worry that without a competitive market there will not be sufficient downward pressure on prices."

Tom Alexander, head of Orange, said that the merger with T-Mobile would not lead to higher prices for consumers.

However, financial analysts said consolidation should be good for all the remaining network operators because less competition could give them greater pricing power, and therefore higher margins.

But James Barford, analyst at Enders Analysis, said fewer network operators could thwart innovation on mobile products, and result in worse offers for consumers.

The competition authorities are expected to look at whether mobile pricing would be adversely affected by the merger, as well as the impact on innovation.

Lawyers said the authorities were likely to consider measures to support 3, which has been the most aggressive network on pricing since it began services in 2003.

Kevin Russell, head of 3, said the authorities should insist on regulatory reforms that would enable it to compete better.

The regulators are also expected to consider how consolidation might affect the MVNOs, which last year had a 13 per cent share of UK mobile customers.

Virgin Mobile is the largest MVNO in the UK, with 3.2m customers; it has not objected to the merger plans involving T-Mobile.

"Having reached an agreement that enables [T-Mobile] to pursue the proposed merger, we will now be working to understand in more detail how the transaction impacts their future plans and to identify the long-term implications of consolidation for our business and the market," said Virgin Media.

But Lebara, an MVNO using Vodafone's network, said consolidation could have negative consequences. Lebara focuses on mobile services for immigrants. It has 1m customers. It said: "Fewer [network operators] will weaken the competitive environment for new wholesale deals.

"Although with four [network operators] the position of market leading MVNOs such as Lebara remains strong, new entrants may struggle to gain acceptable terms; that will be to the long-term detriment of the consumer."