Vodafone, the world's largest mobile operator in terms of sales, is reportedly considering a bid for the UK mobile operation of Deutsche Telekom, in order to boost its position in its domestic market.
A move for T-Mobile UK would certainly be audacious and would likely be closely scrutinised by industry regulators due to the likely repercussions for the mobile market in the United Kingdom.
According to the report in the Financial Times which quoted "people familiar with the situation", T-Mobile's owner, Deutsche Telekom, has appointed JPMorgan to advise on the strategic options for the business after several years of under-performance.
It is thought that T-Mobile UK has an estimated enterprise value of three to four billion euros (£2.5 billion to £3.4 billion), although any purchase price is likely to be far higher than that. Back in 2006 for example, Telefonica paid £17.7 billion ($29 billion) in cash to acquire UK mobile operator O2 (formerly BT Cellnet).
Vodafone declined to comment, as did Deutsche Telekom, said the FT.
But again quoting people familiar with the situation, the UK newspaper said Vodafone was examining the case for making an offer for T-Mobile UK, or setting up a joint venture.
The United Kingdom is a highly saturated market, and is unique as it is the only major European country with five mobile operators (Vodafone, O2, Orange, T-Mobile UK, and 3). This means that competition is especially fierce in the UK and returns are slim.
If Vodafone were to succeed in acquiring T-Mobile UK, it would gain a clear leadership position in the UK and overtake current market leader O2.
"Looking at how the story emerged, and the fact that Vodafone are not vehemently denying it, there does seem to be a certain amount of credibility here," said Emeka Obiodu, a senior analyst at industry analyst group Ovum, commenting on the FT report. "There isn't enough for us to dismiss the story, but there is also not enough to confirm it either."
"Vodafone wants to lead the market in the UK," Obiodu told CIO UK sister title Techworld. "In a number of ways Vodafone acts the UK incumbent, except for BT of course. Vodafone wants to dominate the UK and that is a big factor in this."
"For all the talk that the UK is fiercely competitive, the average price per minute in the UK is higher than in France, Germany, Spain etc, all countries which are dominated by local incumbents," he said.
According to Obiodu, T-Mobile UK has been struggling in the past few quarters and has been losing customers and revenues. It is also a minor player in the business market and "its strategic options seems to be limited."
Obiodu pointed out that T-Mobile UK got a new management team a couple of weeks ago. Also, its partner Virgin Mobile has been haemorrhaging customers recently, which means that its partnership is not as profitable as it once was.
Virgin Mobile (now part of the triple play offering from Virgin Media) piggybacks its mobile service on T-Mobile UK's network.
Obiodu believes a deal between Vodafone and T-Mobile UK will attract regulatory attention. "We have asked our regulatory team about this, and the general opinion is that while they may not be comfortable with it, they will likely to give it the go ahead, with certain conditions, so we don't see any reason they would prevent it," he said.
Vodafone last week moved its headquarters from the provincial market town of Newbury in Berkshire to offices in Paddington, London. Vodafone had been based in Newbury ever since it was spun out of Racal Electronics way back in 1991.