Bidding war for T-Mobile heats up

A protracted battle for T-Mobile UK looks to be on the cards, as O2-owner Telefonica joined the growing list of interested suitors. O2 is the country’s biggest mobile operator, but faces losing its position if Vodafone manages to bid successfully for T-Mobile. Deutsche Telekom is looking to offload its UK arm for €3-4bn, leading to a potential bunfight as other operators seek to increase their market share via its purchase. Vodafone has 25 per cent of the market currently, second to O2 with 27 per cent, but would increase its share to 40 per cent with any T-Mobile purchase.

France Telecom – owner of Orange, the UK's third-biggest operator – has itself denied having interest in the unit, but is said to be considering a joint venture, which might not involve direct purchase but would still give it top market share, by adding T-Mobile's 15 per cent to its own share of 22 per cent.

Consolidation of some sort now appears all but inevitable, as the UK market's five operators outstrip most of Europe which has four major operators in its markets. A reduction in capacity would also increase margins for all the players. With T-Mobile now in play, the likelihood of the smallest player, 3, being auctioned off as well, is growing.

Usually a move giving one company such a big share of the market would be frowned on by regulators but in this case with benefits apparent for the entire industry it is much more likely to be rubber-stamped.

WHAT THEY ARE SAYING:

Emeka Obiodu, senior analyst at industry research group Ovum, in the Guardian: "Everyone agrees consolidation is needed and seemingly T-Mobile will fall first. Can (a buyer) be certain that it will have T-Mobile's entire customer base when a deal is completed? Or will it pay for a vanishing customer base?"

Jenny Block, competition lawyer at Simmons and Simmons, in the FT: "This would be a complex and challenging combination and likely to prompt a detailed investigation by the competition authorities. However, it may be going too far to say that it would automatically be blocked."