Since writing this of course the company was named – rather appropriate given my title – Everything Everywehere
The British Government Never Supports Indigenous ITC Suppliers
This week T-Mobile and Orange announced that they plan to merge their operations in the UK. Seldom will a merger have affected more customers in a single country, as they have around 30 million or 50% of the population. If approved the planned organisational structure will see the two parents taking a 50:50 ownership of the joint venture (reminiscent perhaps of Sony Ericsson in the handset market or the recently disbanded Fujitsu Siemens).
The ITC market in the UK is particularly open. In my experience competition is also almost always stronger, partly because American companies have few language barriers – but also because UK governments (both Conservative and Labour) have steadfastly refused to protect or support UK ITC companies, unlike other European nations. Which other country in the world would ever have dared to outsource its Income Tax processes to a foreign national services supplier? By choosing EDS in 1994 the government effectively put a nail in the coffin of ICL, which then lost its independence to Fujitsu (1998) and finally its name (2002). There was never any programme here like the US Federal governments ‘buy American’ policy.
The British government also forced BT to divest its mobile phone operation, which became O2 before then being purchased by Spain’s Telefonica. Vodafone is now the largest indigenous mobile phone operator in the UK, but it lacks the massive presence of the privatised telecom players in Germany, France, Italy and Spain, which also have significant fixed line businesses. The government’s lack of support has created weaker national players and made the UK an easier territory to experiment in, as others have found. In the energy sector this year the French company EDF decided to advertise its own ‘Green Great Britain’ day, complete with a green Union Jack, for instance. In most other countries it would be ill-advised for a foreign company to make fun of a national emblem, however ‘right-on’ its environmental approach is considered.
The UK’s Ofcom quango publishes some neat market research on UK mobile subscriber numbers. I’ve repeated their market share information in Figure 2, which shows the total number by supplier for 2008 – both in terms of the actual shares and a ‘what if’ with Orange and T-Mobile combined. I find it odd that Ofcom’s total for the two is 28.4 million, whereas the respective financial reports give a much higher number – 32.8 million in fact. Probably the discrepancy is due to de-duping the data somehow, as even the lower Ofcom market size is bigger than the UK population. In any case the Ofcom data shows that T-Mobile and Orange combined would have shared 37% of UK mobile phone subscriber numbers. This would have relegated Vodafone (21.5 million) and O2 (17.7 million) from their respective 1st and 2nd positions.
Savings To be Invested In ‘Digital Britain’ Activities, But Will Include Job Losses
The two combining companies have announced planned savings through consolidation of their 2G and 3G networks, the closure of 120 of the 733 high street shops and a reduction in the marketing spend. Clearly there will be also be substantial job losses as well. They’ve announced their intention to reinvest the savings in expanding their network coverage in line with the government’s ‘Digital Britain’ campaign. As a customer myself, I hope they put all their money into 3G, as using 2G on a laptop reminds me (depressingly) of the dial-up modems of the 1990s. The two companies say they will keep their separate branding for 18 months – and no – despite my title here they haven’t announced any joint brand yet.
Could this be a precursor to wider joint ventures? I think it’s highly unlikely for the whole companies (almost as much for T-Mobile/Orange as for Deutsche Telekom/France Telecom). At the country level? Well only Poland and Slovakia are candidates, if you’re looking for countries in which both companies operate. You could also add Romania, although whether Deutsche Telekom would want to make a change to its recently acquired business from OTE there is another question. One thing’s for certain – you’re unlikely to see a joint operation in either Germany or France.
Will The British Government Ratify The Deal?
I’m sure the UK regulators should have a closer look at the combined market share potential of the two companies, as the numbers given in their annual reports suggest a 40% share of UK mobile subscribers, not the 37% given in the Ofcom report – and close to the number traditionally considered too high by the EU for anti-competitive reasons. In addition they should think about the overall business of the two companies – France Telecom and Deutsche Telekom are the two largest Telecoms suppliers in EMEA (see Figure 1).
Despite these considerations, my guess is that the experiment will be allowed. It’s unlikely that the UK market will become more regulated, despite the banking crisis. I believe the deal will be good for users if the country gets better 3G coverage with less phone masts and there’s enough surviving competitors to keep prices down.
Filed under: Deutsche Telekom, Everything Everywhere, France Telecom, Orange, T-Mobile Tagged: | BT, Deutsche Telekom, EDF, Everything Everywhere, France Telecom, Fujitsu, ICL, Martin Hingley, O2, Ofcom, Orange, T-Mobile, Virgin Mobile, Vodafone
