France Telecom & Deutsche Telekom form JV to save EUR 1.3 billion
Two European MNOs announced that they have signed a non-binding agreement to create a 50/50 partnership, according to which the companies will start joint purchases of phones, network equipment, service platforms and other technology infrastructure in Q4/2011. The deal will affect the purchase of about 45 million devices annually across the two groups, which are expected to be brought to market faster and, potentially, at lower cost. It’s believed that France Telecom will save about EUR 900 million annually after three years, and Deutsche Telekom more than EUR 400 million. Savings from alignment for commercial benefit in network equipment in the first three years of the joint venture operations will be balanced out. Then the JV is expected to play a role in mobile handsets purchases, especially to gain from economies of scale, and to be in a better negotiation position when dealing with major handset vendors such as Apple, Nokia… or Google. Also, combining the SIM purchases of France Telecom and Deutsche Telekom will give the operators a stronger edge over their suppliers.
The jointly owned and operated entity will have two operational units in Bonn and Paris, and will be staffed by employees from the respective procurement departments of both groups that already deal with purchasing customer equipment, network technology, service platforms, IT-infrastructure and procurement engineering.
The joint purchasing volume of both companies in these areas is about EUR 13 billion a year. Moreover, the procurement plans only cover one-third of the two groups’ combined annual spend of around EUR 40 billion, providing a scope for further additional synergies.
A final agreement is to be signed in coming weeks and the regulatory approval may come in the middle of the year.
Previously, France Telecom and Deutsche Telecom merged their Orange and T-Mobile activities in the UK into the “Everything Everywhere” company (cf. Smart Insights Weekly #10-20). T-Mobile (Deutsche Telekom) has 150 million mobile subscribers in 10 countries, where as Orange (France Telecom) has 150 million subscribers in 24 countries.