Vodafone may make bid for T-Mobile to boost growth

Published on Monday 29 June 2009 21:44

VODAFONE is believed to be considering a bid to buy rival T-Mobile, in a deal which would see it become Britain's largest mobile phone provider.

London-based Vodafone is considering whether buying the UK business of Deutsche Telekom is the right way to increase profitability in a market with limited growth potential.

Analysts suggested yesterday that the bid was likely to be around 3 billion, but warned that any deal could be blocked by competition authorities.

T-Mobile has around 15 per cent of the UK market, although its financial performance has not been strong.

Deutsche Telekom is believed to have hired investment bank JP Morgan to advise it on its strategic options for the business.

Vodafone has around 25 per cent of the UK mobile market behind O2 – owned by Spain's Telefonica – with 27 per cent. France's Orange has 22 per cent of the market while 3, owned by Hong Kong-based Hutchison Whampoa, has 8 per cent.

Mobile phone companies claim the high number of operators in the UK – no other European country has five mobile providers – eats into profits because of the extreme competition.

In recent years Vodafone has focused on building its business in developing countries, signing a string of deals in China, India and Africa.

Chief executive Vittorio Colao has recently signalled that the group would curb its expansion into new territories and focus on making existing businesses more profitable.

Vodafone recently completed a merger of its Australian business with 3, and the company is also raising its share in South Africa's Vodacom.

The company cut its sales forecast twice in 2008 and has not given one for the current year, blaming economic uncertainty.

On 19 May it said it had speeded up a cost-cutting programme to counter the economic slump but also warned that its profits may fall.

Socit Gnrale analyst Ottavio Adorisio said that, with faltering profits and a saturated market in the UK, merger and acquisition "is therefore the only vehicle available for growth".

Chief executive Rene Obermann said last month that Deutsche Telekom would take a long-term approach to its UK business, although the financial performance of T-Mobile has been poor.

In May, Deutsche Telekom reported a first-quarter loss of 1.8 billion (about 1.53bn) at its UK business after major asset write-downs.

Vodafone and Deutsche Telekom declined to comment on reports of a possible takeover. Shares in Vodafone closed 1.2 per cent higher at 117.6p.