Speculators have stated that a deal between the two mobile operators could fall down at the regulatory permission level a it would create a business in the UK with a 40% market share. However, Mark Hodac, partner at technology and corporate law firm, White & Black Legal , said: “Whilst consumer groups will be concerned, it is by no means certain that regulators, in particular the European Commission, will block the deal as circumstances already exist in other EU member states such as Italy, France and Spain, where one mobile operator holds at least a 40% market share.
“Furthermore, our experience shows that network coverage is as, if not more, important to customers than pricing, and T-Mobile’s customers may welcome the increased capacity for infrastructure expenditure that Vodafone (as the world’s largest mobile phone operator) could offer,” Hodac stated.
“Although both Vodafone and T-Mobile have declined to comment, it is understood that Deutsche Telekom (T-Mobile’s owner) has appointed JPMorgan to advise it on its options. If completed, the acquisition will create Britain’s largest mobile phone operator with some 40% of market share. Understandably, regulators will be watching developments very closely,” continued Hodac.
While the joining of two dominant players may raise regulatory concerns, particularly given the high market shares of both players, the bid in itself provides positive inertia for consolidation in a crowded market, said Sharifah Amirah, a principal analyst and leader of the EIA telecoms research team at Frost & Sullivan.
She said: “Synergy wise, the takeover will enable Vodafone to grow its pre-paid based by more than 100% and a leading position in mobile broadband. Another plus point is that the combined entity will then have spectrum availability on both the 900 MHz and1800 MHz blocks. This can be seen as a further regulatory concern. On the flip side though, if 02 and Orange combine forces Ofcom’s spectrum ordeal might come to an end, depending of course on what happens to 3.”
Britain’s mobile phone market is unique in comparison to other significant European markets. With five major companies - Vodafone, Orange, O2, T-Mobile and 3 - fighting for a slice of the pie, the domestic market is significantly more crowded than markets across much of Europe, explained Hodac. Consequently, mobile phone companies are exposed to fierce competition domestically and are forced to operate at tight profit margins.
“The mobile phone industry has not been immune to the economic downturn and may well welcome this news on the basis that a reduction in the number of players in the market could allow the remaining operators to achieve healthier margins,” Hodac concluded.