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Who wants T-Mobile UK?

Forget the customers, grab the spectrum and run

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T-Mobile UK will be sold in the next few months, and the markets are salivating at the synergies possible - but it could easily be T-Mobile's network that remains in place when the dust settles.

Any doubts that Deutsche Telecom wants shot of its UK arm, T-Mobile, were firmly put to rest with Vodafone and then Telefonica in the frame to purchase the ailing operator, and analysts leaping into the fray to suggest that the buyer could save millions by shutting down T-Mobile's network. But with the named buyers running on a different frequency, and T-Mobile already sharing a network with 3, it might not provide the result that the markets are expecting.

Telefonica and Vodafone both run 2G, GSM, networks around 900MHz - spectrum that was awarded to them and for which they pay a nominal sum every year. This spectrum will cost a lot more in future as Ofcom changes the rules as part of the Digital Britain initiative. T-Mobile's 2G network, by contrast, runs at 1800MHz using spectrum that was paid for at auction.

These days all GSM handsets happily switch between 900 and 1800MHz networks. But it's not just a simple matter of switching one network off as there will be some legacy equipment that can't make the transition. Vodafone customers already roam onto 1800MHz, as the operator has a small holding in that region. But 900MHz is unknown territory to T-Mobile users.

3G networks should be easier: all UK 3G networks run at around 2.1GHz, so there's plenty of overlap. But T-Mobile UK's 3G network is in the process of being shared with 3, making the two companies interdependent.

Any purchase of T-Mobile would threaten that process, although contracts have already been awarded and around 5000 sites are due to be decommissioned. If 3 bought T-Mobile that would work rather well, but 3 is the only operator which hasn't been named as a potential purchaser - probably as it hasn't got the money.

T-Mobile is being valued between £2.6bn and £3.4bn, which values the 19m customers at something around £150 each. That sounds like a bargain, considering the subsidy that an operator is prepared to offer on handsets. But it's worth remembering that many of those 19 million are pre-pay and small-scale users who probably rate only £50 or so in handset subsidy.

Then there is matter of T-Mobile UK's 1800MHz and 2.1GHz spectrum holdings. The latter would fit particularly well with Vodafone's holding, as the companies own adjacent spectrum. A purchase would give Vodafone two blocks of 25MHz in 2.1GHz, which could prove very useful for deployment of LTE (Long Term Evolution - the next generation of mobile telephony).

One of the great things about LTE is its ability to expand and contract spectrum usage to suit the usage - if few people are about and you want lots of speed than your LTE connection will expand to fill 20MHz of spectrum and offer you speeds topping 100Mb/sec. If you're stuck on the M25 with everyone else trying to call home then your connection slims down to just 1.25MHz of bandwidth to carry your voice.

This means that operators deploying LTE need large blocks of contiguous spectrum. Not only would a Vodafone purchase give the operator a contiguous block of 50MHz at 2.1GHz, but T-Mobile has a pair of 30MHz blocks at 1800MHz; currently fully of 2G users.

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