BT and Telefonica are rumored to be considering merging their mobile operations.
It was rumored at the weekend that UK incumbent telecoms firm BT would merge its wireless operations with Telefonica Moviles, the wireless arm of Spain’s telecoms incumbent. Whilst BT has so far denied these rumors, they are by no means implausible. BT has been in merger and alliance talks with Telefonica in the past – and there are certainly reasons to doubt that the scheduled IPO for BT’s mobile unit will go ahead as planned.
Mobile operators are no longer popular companies, as many observers start to doubt the revenues achievable from broadband services. Indeed, it is estimated that on average it will take six to seven years for operators to break even with 3G services. Worse, the markets will be saturated with mobile share offerings over the next few months, starting with France Telecom’s Orange.
BT has already changed some of its restructuring plans. Instead of floating its listings and directories business Yell, BT last month announced it was instead considering demerging it completely and transferring some of its debt to the new company. This was prompted by the decline in Internet businesses’ share values, which has been paralleled by the decline in telecoms stocks. So a new approach for BT Wireless may also not be out of the question.
BT Wireless and Telefonica Moviles’ existing operations would fit together well, creating a company with a strong footprint in most of Europe’s leading markets, as well as BT’s interests in Japan and Telefonica’s South America. However, the companies are leading members of rival UMTS consortia in Germany, whilst BT is also part of a consortium that aims to compete with Telefonica in Spain.
But perhaps the companies could turn this into an advantage. The costs of building a 3G network in Europe will be extremely high. If the rumor does prove true and if the companies could somehow persuade their consortium partners to agree, there would be an opportunity for substantial cost savings if BT and Telefonica combined their operations in the markets where they overlap.
