Orange T-Mobile UK Deal Set for EU Nod

European regulators are expected to give approval to the merger between Orange (FTE) and T-Mobile UK (DT) on Monday after accepting the latest concessions offered by the mobile phone operators.

The news emerged as the two companies reported strong sales over Christmas yesterday. Sources close to the UK merger Thursday said they had become "quietly confident" of European Commission approval in the past few days. The Office of Fair Trading is now expected to withdraw its request to scrutinise the merger in the UK shortly before the European regulators' approval, allowing the deal to proceed.

The sticking points over the merger going ahead focused on the amount of radio spectrum the company would control, and where the deal would leave the mobile operator 3, which had signed a network-sharing agreement with T-Mobile. Orange and T-Mobile have offered to give up 25 per cent of their combined 1800 MHz spectrum, which is seen as crucial for UK operators to provide faster internet services over mobiles. Rival operators had cried foul over the potentially merged group's dominant share of the valuable frequency.

The regulators had also worried about securing the commercial viability of 3, owned by Hutchison Whampoa, the UK's smallest network. T-Mobile and 3 had signed a deal in December 2007 to create the Mobile Broadband Network Ltd joint venture to consolidate their networks and boost their 3G services across the country. There had been fears that the merger with Orange could scupper the network share, which is seen as crucial to 3's future. It is understood that the deal has been renegotiated with terms acceptable to 3.

Orange has secured a further 404,000 customers in the last quarter of 2009, to bring its total to 16.5 million. The Apple (AAPL) iPhone has been particularly successful in driving growth over Christmas, with 220,000 customers opting for the device since Orange broke O2's exclusive hold on it in November.

Vodafone, the second largest player in the UK behind O2 (TEF), reported last month that it had 19.1 million customers in the UK at the end of December, although it compiles the numbers differently to its rivals. These figures do not include the iPhone effect, which the group started selling in January. Should Orange and T-Mobile's merger indeed be approved this week, the combined company will leapfrog both O2 and Vodafone to become the largest operator in the UK.

Thursday, Orange reported revenues for the year as €5.1bn (£4.5bn), down from €5.9bn in 2008. The group said it had performed "strongly during the recession" and the revenues had mainly suffered due to an unfavourable impact of the exchange rate as well as "regulatory measures." The lower termination rates dragged by €192m.

T-Mobile UK also announced it had added 570,000 customers in the last quarter, in its "best ever December," as it focused on attracting pre-pay users. This brought the total to 17.2 million customers, although the group also counts the 3.1 million on Virgin Mobile, which uses T-Mobile's network. Its annual revenues fell to £3bn from £3.2bn, with the company also blaming the regulatory impact of the lower termination rates and foreign exchange issues.

Richard Moat, the managing director of T-Mobile UK, said performance was strong in the second half of the year, as it focused on cost cutting, market investment and overhauling the business.

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