Phone
The 50-50 venture will oust Telefonica SAs O2 service from the top spot and will have 30 million subscribers, or 38 percent of the U.K. market. The accord would end months of speculation during which Deutsche Telekom had been expected to sell or fold its U.K. unit into a joint venture. An announcement on the deal is expected to be made tomorrow, Dow Jones said.
The venture would reduce the number of mobile-phone operators in the U.K. to four, with the others being Vodafone Group Plc and Hutchison Whampoa Ltd. The deal would consolidate a market that had five mobile companies and has been more competitive than Italy and France.
“Deutsche Telekoms U.K. unit is just too small to compete in this crowded and saturated market and profitability is declining as a result,” Theo Kitz, an analyst at Merck Finck in Munich, said. Kitz has a “sell” rating on the shares.
The company has been studying options for its T-Mobile UK unit since February, a person involved in the discussions had said earlier, declining to be identified because the talks were private. Phone companies are looking to reduce costs as clients are spending less amid the economic slowdown. Vodafone, Deutsche Telekom, Royal KPN NV and Mobistar SA said in May that the recession was eroding profit as consumers and businesses reduced mobile-phone use.
JP Morgan Retained
Deutsche Telekom spokeswoman Anna Bischof declined to comment as did Michael Lange, a spokesman for T-Mobile International, and France Telecom spokesman Tom Wright.
The Bonn, Germany-based company was in talks with Vodafone, Telefonica and France Telecom, and retained JPMorgan Chase & Co. to review options, three people familiar with the talks had said in June. The unit may fetch more than 3 billion pounds ($4.9 billion), they said. Vodafone Group and Telefonica made informal offers to buy it for about 4 billion pounds, the Financial Times said today.
Subscribers to T-Mobile UK services fell 0.6 percent in the second quarter from the preceding three months, according to Deutsche Telekom. It was the only one of the companys 16 mobile divisions to post a decline in users.
O2, owned by Telefonica, had 27.7 percent of the U.K. mobile-phone market by revenue in the second quarter, followed by Vodafones 24.7 percent and France Telecoms Orange with 21.5 percent, based on the companies results.
The U.K. “is a much more level playing field than most other European markets,” Mark James, an analyst at Evolution Securities in London, said in a telephone interview. “Take one player out — of course thats going to be welcome for everybody still in the game.”