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T-Orange: How it's going to work

Telcos to slash and burn ahead of 2012 hook-up?

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The T-Mobile and Orange brands will survive for at least the next two years in the UK as the telcos combine their operations here - though their employees might not.

The merged operation of Orange and T-Mobile is expected to save €445m in operational expenditure annually, a saving that will come from shutting shops, dismantling masts and closing duplicated departments. But that's going to take a couple of years and it won't be until that process is completed that we'll find out what the new venture's going to be called.

Today's announcement is just that: nothing has been signed as yet, as the companies are now commencing a due-diligence process to make sure there aren't any debts hiding behind the sofa. This also gives them a couple of months to put the paperwork together. The idea is to have a signed agreement in place by the end of October, and then let the EU (and Ofcom) have a think about the competition issues.

No one has ever done this before, so the process for approval isn't clear, but the UK is a very competitive market with lots of other operators. So Orange and T-Mobile reckon regulatory approval will come in about six months, at which point the deal is completed and the company starts realising those synergies they keep talking about.

That starts with Orange chucking in £1.25bn to make up the difference in value between the two companies. Deutsche Telekom then loans £625m to the new venture which it then repays to Orange: that leaves the new company owing £625m to each of its parents, and equally owned by them both.

Combining the operations is expected to take about 18 months, and the two brands will continue to exist for that period (perhaps with a footer on the logos to indicate shared ownership). Meanwhile, duplicated departments will be shut down, 120 shops will close, call centres will be consolidated and the physical networks will merge into a single infrastructure supporting both 2G and 3G technologies.

Right now T-Mobile has around 10,000 2G base stations, while Orange runs about 13,000; both companies operate around 7,000 3G base stations. T-Mobile has already started upgrading all its 2G bases to support 3G and that will be the strategy for the new venture, which eventually plans to have between 14,000 and 16,000 bases in operation.

Obviously that represents quite a saving, though the new venture reckons only a third of the savings will come from reduced cost of infrastructure: the other two-thirds will be saved by reductions in sales and marketing and closing down the duplicated departments.

Virgin Mobile, who could have walked away from its MVNO arrangement with T-Mobile thanks to the "change of ownership" clause in its contract, are apparently all in favour of the deal. Equally unaffected will be 3, who already has a network-sharing deal in progress with T-Mobile. During the press conference this morning 3 was variously described as "highly supportive", "strongly supportive" and "hugely supportive", so we gather that the operator is in favour of the deal.

So some time around the beginning of 2012, having made all the savings and laid off the excess staff, it will just remain for the new venture to sit down and decide what it's going to call itself. Suggestions on a postcard please. ®

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