T-Mobile UK buyout looks unlikely

An announcement by UK telecoms watchdog Ofcom that is happy with the status quo of the UK mobile market means an acquisition of T-Mobile UK by one of its market rivals looks less likely, according to analysts.

@telecoms

July 13, 2009

1 Min Read
T-Mobile UK buyout looks unlikely
T-Mobile UK buyout looks unlikely

An announcement by UK telecoms watchdog Ofcom that is happy with the status quo of the UK mobile market means an acquisition of T-Mobile UK by one of its market rivals looks less likely, according to analysts.

Late last week, Ofcom said that it would not conduct a formal review of the UK mobile sector and was satisfied that competition was healthy.

Indeed, UK operators earn relatively low margins due to intense price competition and a strong indirect sales channel that charges high dealer commissions. Any change to the market make up by consolidation risks rocking the boat and drawing regulator attention.

“Assuming rational operator behaviour, we would be inclined to believe that an already weak case for buying T-Mobile has been made weaker for the big three UK mobile players,” said Michael Kovacocy, European telecoms analyst and sector strategist at Daiwa Securities.

During the recent period of speculation when all three other major UK operators -Vodafone, O2, and Orange – were said to have been considering a buy out of T-Mobile, Daiwa said the risks of overpaying were significant, with only “a bargain basement price” of £1-2bn making any sense. Although this would be unlikely as T-Mobile is not a distressed seller. But now if a buyout were to change the competitive status quo, Ofcom could launch a formal review of the UK mobile sector.

As a result, Kovacocy believes that the big three will now ask themselves whether they should risk rocking the boat and receive significantly more regulator attention for what looked an already risky deal.

However, this may still leave 3 UK in the running, although a deal between T-Mobile and 3 would also give O2 something to think about, by almost matching the leader’s market share.

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