T-Mobile and mmO2 have confirmed they will share their 3G networks in Germany and the UK.
T-Mobile and mmO2, the mobile arms of Deutsche Telekom and BT respectively, have announced that they will join forces to build out their 3G networks in the UK and Germany. The agreement, originally announced in June, was finalized on Thursday. The companies believe the deal will save them around $2.5 billion each.
The markets seemed unimpressed by the deal, with shares in both parent companies falling on Friday. However, this reflected a general decline in European share prices and the fact that the deal was already expected, rather than a belief that sharing is a bad move for the companies.
Datamonitor estimates that if each operator built an individual networks in Germany, the total cost would be $30 billion in infrastructure spending, on top of the huge investments in license costs and marketing. The figure for the UK is $16 billion. Clearly, network sharing will indeed make a big dent in these costs. Three of Germany’s other operators,
The deal, then, is mostly a reflection that firms got carried away in last year’s 3G bidding frenzy and are now trying anything to cut costs and reduce their debt piles. Deutsche Telekom is one of the world’s most heavily indebted companies, behind only GM, General Electric and France Telecom. And BT’s debt problems have been well documented, although admittedly mmO2 will start life as an independent company in November with just $725 million of net debt.
In short, license sharing is undeniably a good move. But it may not be enough to make 3G operators financially successful in the medium term, particularly in Germany where there are six operators, many of whose balance sheets are less than strong. Some consolidation may well still happen. BT and DT aren’t among the companies likely to be affected, admittedly – but the amount of competition in the market will clearly affect their performance too.
