Orange and T-Mobile stubborn over merger

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Deutsche Telekom (Xetra: 555750 - news) and France Telecom (Paris: FR0000133308 - news) have signalled they are unwilling to make concessions to competition regulators who will decide whether to allow the merger of their UK mobile phone businesses.

Hamid Akhavan, Deutsche Telekom's chief operating officer, and Olaf Swantee, head of France Telecom's mobile operations worldwide, said they saw no need to relinquish valuable radio spectrum in order to gain regulatory approval for the merger.

But Ed Richards, chief executive of Ofcom, the UK telecoms watchdog, signalled that regulators were likely to give the transaction intense scrutiny because of the risk of consumer harm.

France Telecom's Orange UK and Deutsche Telekom's T-Mobile UK are proposing to form a joint venture that would become the largest British mobile business, with a 37 per cent share of revenue paid by phone users.

Orange and T-Mobile are currently the third- and fourth-largest mobile operators, behind Telefónica's O2 and Vodafone (LSE: VOD.L - news) .

Mr Akhavan, who is responsible for Deutsche Telekom's European mobile operations, on Friday expressed optimism that competition regulators would approve the merger, which was finalised this month.

He rejected suggestions that Orange and T-Mobile should relinquish spectrum so as to secure regulatory approval. "Absolutely not," he told a conference organised by the Financial Times.

He also complained that UK mobile operators' profit margins, measured at the level of earnings before interest, tax, depreciation and amortisation, had fallen from 35 per cent in 2002 to about 20 per cent now.

Mr Akhavan said such levels of profitability limited the ability to make new investments.

Mobile operators are under increasing pressure to upgrade their networks so they can cope with bandwidth-hungry smartphones.

Mr Richards, while noting Mr Akhavan's concerns about profit margins and investments, said consumers had benefited from lower mobile phone prices and new services. "That is a serious issue," he said, adding that Ofcom was analysing how the merger would affect consumers.

Orange and T-Mobile own the bulk of the spectrum at the 1800 megahertz frequency, which is suitable for the next generation of mobile technology that will enable broadband download speeds of 50 megabits per second or more. Currently, some networks support seven mbps, although actual speeds are usually much slower.

O2 and Vodafone are likely to press the regulators to require Orange and T-Mobile to relinquish some of the 1800MHz spectrum.

Mr Swantee, speaking on Thursday, also expressed confidence that regulators would approve the transaction. He rejected the case for Orange and T-Mobile giving up some spectrum. "We do not believe there is any need for concessions," he said.