Vodafone named as potential suitor for T-Mobile UK

The Monday morning rumour mill has identified Vodafone as a potential suitor for T-Mobile’s floundering UK operation, adding the Big V to a list already featuring Orange and 3 UK.

Consolidation in the mature UK market has long been expected, and a goodwill writedown of €1.8bn for the carrier in the first quarter fuelled speculation that T-Mo is looking to offload its UK operation.

In a market with more than 125 per cent penetration by the end of March, 2009, O2 UK is the market leader with over 28 per cent market share, while Orange, Vodafone and T-Mobile all hover around the 21 per cent mark. 3 on the other hand, which has also been identified as a good fit partner for T-Mobile UK, lags behind with just over six per cent of the market.

Analysts tend to like in-country consolidation, especially in troubled markets such as the UK, but Michael Kovacocy, European telecoms analyst and sector strategist at Daiwa Securities, warns that the acquisition of T-Mobile UK could be a tricky move and could very well backfire for any acquirer.

“The risk of overpaying or being left to deal with T-Mobile’s messy UK operations should not be overlooked. We would highlight T-Mobile’s heavy prepaid exposure and relatively less valuable customer base in particular,” said Kovacocy.

For the UK market in particular, the analyst advises a move to a more “future proof” business model, such as O2’s high end offers like the iPhone, or targeting the mass market through low cost models such as SIM-only.

“Whilst a deal is possible, we wouldn’t be surprised to see T-Mobile still make a go of it in the UK as opposed to selling out at the bottom,” said Kovacocy.

There are also obvious regulatory hurdles which could throw a spanner in the works of any deal. A partnership between T-Mobile UK and any other operator, with the exception of 3, would create a new market leader – and by some margin. A deal between T-Mo and 3 would also give O2 something to think about, by almost matching the leader’s market share.