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T-Orange: And then there were four

What the new deal means for consumers and the industry

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T-Mobile and Orange reckon their merger will be good for shareholders, good for the industry and even good for the environment. But it is possible that customers might not be so enamoured.

The new venture, which won't have a name until 2012, will be the largest network operator in the UK, with 37 per cent of the market. It will dwarf its nearest competitor and raise the spectre of excessive market control, even as it achieves unprecedented economies of scale.

The UK mobile industry is one of the most competitive in the world, which can be attributed to the remarkable parity of scale between the network operators. Over the last decade Vodafone and O2 have vied for top spot as they both climbed towards 20 million subscribers. T-Mobile and Orange have been snapping at their heels, while 3 spent an entertaining period buying up customers, much to the annoyance of everyone else.

The network operators also have remarkable parity in coverage. The big four provide the vast majority of the country with 2G coverage and the major population centres now have five operators offering 3G services - 3 only runs a 3G network, and roams to Orange where necessary.

Having established the coverage, most operators are looking to reduce the cost of maintaining that network. T-Mobile and 3 are in the process of combining their 3G networks, and even Vodafone and O2 have started bunking up together. When it comes to increasing revenue, the operators all offer unfeasibly large portfolios of tariffs. This makes it all but impossible to compare prices, and leaves most customers opting for simplicity by paying slightly over the odds for their service.

So by 2012 there could be two less networks: Vodafone and O2 will run their own 2G and 3G networks, while T-Orange* and 3 share responsibility for the third, resulting in a huge reduction in cell sites (bad news for Arqiva). Should Vodafone and O2 decide to do more than share air conditioning, then that could then reduce further to a pair of networks, shared by four brands.

That doesn't have to be a bad thing, as competition can equally well be carried by the brands. But this deal will see at least one brand up against the wall, and that's not going to be good news for consumers. As James Parker at MoneySupermarket.com puts it:

"If this merger does go ahead then it will ultimately mean one less mobile operator in the UK market... T-Mobile may currently be one of the smaller players, but it has been creative with its tariffs and Orange also has unique deals such as Orange Wednesdays."

T-Mobile and Orange will, obviously, have to maintain their separate brands for the next eight months, while the deal is under review, but the companies are planning to maintain two identities for a further 18 months to "reduce churn" and "maintain customer loyalty". Beyond that there will only be one brand, and inevitably less choice.

But while that should concern the regulator, it's worth remembering that mobile network operators are having a hard time making money at the moment. Less competition might mean punters end up paying more, but that could be necessary to maintain the services to which we've become used, let alone prompt investment in next-generation services.

Not that LTE will be a priority for the new venture: this morning's press conference described the plans for the deployment of the forth generation GSM technology as "market driven" and "incremental to 3G", which (translated) means they'll only deploy it once the competition has done so, so don't hold your breath for 1Gb/sec wireless speeds any time soon.

France Telecom and Deutsch Telekom are committed to holding together for a year beyond the naming. That will be three years from the signing of the agreement - which is planned for the end of October - after which one partner might buy out the other, or a third party could get involved. But that will depend on what happens over the next 38 months, which should prove an interesting time for the UK's mobile industry, and for T-Orange. ®

* When naming the new venture our preference is for OraBile, but for some reason we can't bring ourselves to use it. ®

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