By Abigail Browne

Although the planned merger of Deutsche Telekom’s and France Telecom’s UK operations may create the biggest mobile operator in the UK, it raises more questions than it answers. Moreover, the 18-month integration window announced by the firms will benefit the other UK operators.

If the merger is finalized, it would create the UK’s largest operator (overtaking O2 which has 22.4 million subscriptions), with a combined mobile subscription base of 33.1 million, including MVNO customers, according to Informa Telecoms & Media figures. This equates to a market share of more than 40%, although further consolidation of the UK market looks more than likely.

The merger appears to be far from straightforward, with both parties needing to agree on multiple aspects of their businesses – including branding, marketing, retail, distribution, tariffs, handset procurement, and systems and network integration.

The group parents have given themselves 18 months to work out a new branding strategy – during which time they would maintain joint branding. However, their different market positions could make a convergence between the brands difficult. T-Mobile UK has historically pursued a price-leader strategy, while Orange UK has positioned itself more in the high- to mid-end, but neither has been able to match O2’s and Vodafone’s exclusive handset deals.

The scale of the new joint venture would give the new entity strong purchasing power but Informa believes the deal is actually good news for competitors Vodafone and O2, despite their own respective bids for T-Mobile UK being rejected.

Vodafone and O2 will both benefit from a reduction in competition, and be able to assert their own brands over the next 18 months while the joint venture focuses on internal integration. Removing one player from the market will also help alleviate the intense price competition that has ravaged the UK market, which will be to the benefit of all players.

The big question now is how the enlarged entity will position itself in the market. Informa believes the success of an enlarged T-Mobile/Orange is by no means guaranteed given the strength of the Vodafone and O2 brands, and the potentially conflicting strategies France Telecom and Deutsche Telekom may have for the UK operation.

The deal will leave the UK with just three mobile networks, as 3 UK will share a 3G network with the new entity and already uses the Orange network for 2G coverage. The fact that 3 UK is still up for sale meanwhile raises a larger question mark over its future.