Deutsche Telekom and France Télécom have begun exclusive negotiations to form a joint venture to run their respective UK mobile communications networks, T-Mobile UK and Orange UK, they said Tuesday.
The combined company will have around 28.4 million customers, or around 37 percent of UK mobile subscribers, they said, putting it ahead of current market leader O2 UK, which reported 20.7 million customers at the end of June, and Vodafone UK, which reported 18.6 million subscribers.
In merging their U.K. mobile operations, Deutsche Telekom and France Télécom hope to make savings of over £3.5 billion or US$5.7 billion. Annual savings should stabilize at around £445 million a year from 2014, they said.
The companies said the merger will bring them closer to customers because they will have more stores and customer service staff - but closing some of these stores and "optimising" the number of customer service staff is key to their cost-cutting plan.
They also said that combining their networks will improve service coverage for customers, yet they also plan to decommission mobile transmitter sites to cut costs. The U.K.'s five mobile network operators, T-Mobile, Orange, Vodafone, O2 and 3, all operate 3G (third-generation) networks in the 2100MHz band. In addition, Vodafone and O2 operate GSM (Global System for Mobile Communications) networks primarily in the 900MHz band, while T-Mobile and Orange have GSM networks operating at 1800MHz. Typically, the 900MHz signals used by the future joint venture's rivals have longer reach and penetrate buildings better.
The work of closing stores, decommissioning transmitters and rationalising operations will cost between £600 million and £800 million over five years, the companies said.
Against that, the companies expect to save around £620 million in capital expenditure over five years by expanding their 3G network coverage jointly rather than independently, they said.
Another area the companies hope to save is on marketing, by jointly promoting their services. That will only be practical once they have chosen a single brand for the venture, a decision they do not plan to take for at least 18 months. Until then, they plan to operate the T-Mobile and Orange brands in parallel.
France Télécom and Deutsche Telekom will each own 50 percent of the planned joint venture.