Owning half a market-leading business is better than owning all of a half-hearted one. That alone is why Deutsche Telekom’s UK joint venture with France Telecom is a good deal. DT has long struggled in Europe’s most competitive mobile market and had tried to sell up. Joining the UK operations of T-Mobile to France Telecom’s larger Orange, with a net €625m payment to its French partner, instead vaults the combo to the top. The operation will also reap a handy £545m of savings a year.
The deal’s two big questions are its regulatory cost, and control. Brussels should not be a problem: at 37 per cent, their combined market share would be shy of the 40 per cent-plus they have at home. UK regulators may be more stringent. The group might have to lower wholesale network access charges for competitors, such as Virgin. They might even be forced to shed customers, perhaps by raising tariffs – although that might be no bad thing. Those that stayed would be more profitable.
Then there is the question of control. Cross-border joint ventures are tricky at the best of times. As DT and France Telecom are more used to competing than co-operating, at its worst this Franco-German venture could turn into an EADS-style mess. In this case, however, the Orange brand has the upper hand. Tom Alexander, its UK chief executive, will lead the venture, supported by T-Mobile’s UK head Richard Moat, a recent Orange alumnus.
Investors have broadly welcomed the deal. That reflects the promise of cost savings, hopes of higher margins and relief that T-Mobile’s future looks assured in the UK. At some point, either, or even both, might want to exit. That could be a problem, although nothing that a stock market listing might not solve.