Vodafone To Acquire T-Mobile For £3.4 Billion?

UK's largest mobile phone network by revenue, Vodafone, is looking to acquire the loss-making UK operations of T-Mobile for a cool £3.4 billion.

The Financial Times newspaper, citing people close to the negotiations, said that the move would give Vodafone a 40 percent market share in terms of revenue paid, far ahead of Telefonica-owned O2 and FranceTelecom-owned Orange with 27 percent and 22 percent respectively.

Vodafone would grow to more than 35 million subscribers, a figure which would give it control on half of the UK mobile market in terms of customers. The possible acquisition could also squeeze out completely 3 Networks as well as other MVNO's like Virgin Mobile as T-Mobile has a number of partnerships.

However, it is likely that Ofcom, the telecoms regulator, blocks the deal as Vodafone would be getting a portion of the market which would make it too large for the good of the competitive landscape.

T-Mobile has written down £1.6 billion off its mobile operations at the beginning of May 2009 while O2 and Vodafone saw profits margins of more than 25 percent. T-Mobile has also announced a 2.6 percent fall in customer numbers, reaching 16.7 million.

Deutsche Telekom had appointed JPMorgan to evaluate the various options available to maximise a potential exit from the UK market or in market terms, "seeking advise on strategic options". Vodafone and T-Mobile declined to comment on the rumours.

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Our Comments

Both Vodafone and T-Mobile have been making structural adjustments according to the way the market is heading. In other words, they have been looking hard at their respective businesses to find out how to cut costs and improve profitability. For Vodafone, this meant taking a huge hit on some operations and firing hundreds of employees.

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