Everything Everywhere One Step Closer As Orange UK and T-Mobile UK Form Roaming Pact

France Telecom's Orange UK and Deutsche Telekom's T-Mobile UK have announced that customers will be able to roam freely between both networks as of next month as part of their U.K. joint venture, Everything Everywhere (EE), which will be fully formed when the third- and fourth-largest mobile operators merge their operations. EE said that from 5 October 2010 customers will be able to opt into switching networks at no extra cost whenever their signal is low, with the switch between the networks automatic from early next year.

France Telecom and Deutsche Telekom have merged their U.K. units, with EE coming into effect from 1 July 2010 as the country's biggest mobile operator ahead of Telefonica's O2 and Vodafone, with more than 30 million customers and an estimated market share of 37% (see United Kingdom: 12 May 2010: Orange UK and T-Mobile UK Merger Named "Everything Everywhere"). However, the combined business has said it will keep the Orange and T-Mobile brands until at least 2012.

Outlook and Implications

• Leveraging Network Quality As Key Selling Point: The merger of France Telecom's Orange UK and Deutsche Telekom's T-Mobile UK was announced last year, and the units have been deconsolidated from the European giant's financial statements since 1 April 2010. The operators have merged as they seek synergies to cope with the intense competition in the mobile sector, and EE is aiming for its network quality to become a selling point as mobile networks become overcrowded with increasing demand from mobile broadband and data services. Orange UK recently launched mobile HD services in the UK following the successful launch of the world's first full mobile HD offering on its Moldovan network in September 2009 (see United Kingdom: 2 September 2010: Orange UK Launches HD Voice Services).

• "Ample Time" to Resolve Spectrum Auction Issues: Recent reports have suggested that EE may launch legal proceedings against the U.K. government if it proceeds with revised plans for the auction of the 800-MHz "digital dividend" spectrum, which is due to happen in 2011 (see United Kingdom: 30 August 2010: Orange and T-Mobile May Go to Court over 800-MHz Auction). The previous government had ordered O2 and Vodafone to vacate some of their spectrum in the 900-MHz band in exchange for permission to partake in the 800-MHz auction; however, the current government appears to have backtracked on this decision. Meanwhile, Orange and T-Mobile have to vacate some of the spectrum they hold in the 1800-MHz band on condition of their merger. While the bidding rules for the 800-MHz and 2.6-GHz spectrum auctions have yet to be announced, EE is unlikely to rest on its laurels as it aims to start building a next-generation long-term evolution (LTE) network next year, offering faster speeds and able to handle more traffic. However, EE has stated that it is talking to the regulator and believes there is ample time to resolve any issues.

• France Telecom and Deutsche Telekom Secure Future in U.K.: France Telecom and Deutsche Telekom have agreed to the merger of their U.K. units to cope with the intense competition in the mobile sector, with the deal considered to be preferable to exiting the market altogether. New France Telecom chief executive Stephane Richard revealed his new five-year plan earlier this month, which aims to grow its client base by 50% to 300 million by 2015, largely via acquisitions in emerging markets (see France: 6 July 2010: France Telecom Aims for 50% Customer Growth by 2015 with New Five-Year Plan). Meanwhile, Deutsche Telekom has recently announced that second-quarter net revenue was down 4.4% year-on-year, which it chiefly blamed on the deconsolidation of T-Mobile UK (see Germany: 5 August 2010: Deutsche Telekom's Q2 EBITDA Margin Stable at 32.3%, Sees Improvement in U.S.).