Looking to manage network costs and operations, European telecom giants Deutsche Telekom AG (DTEGY) and France Telecom-Orange (FNCTF) said they have combined their procurement activities of customer equipment, network equipment, service platforms, and trialing a network infrastructure and IT sharing program as part of a new joint venture. The move builds on previous agreements between the two network operators.
The two said they have signed a “non-binding term sheet” that will be the basis for a final contract that is still to be negotiated.
The companies said the 50/50 JV could provide global savings of between $565 million and $1.3 billion over the next three years, and added that savings from alignment in network equipment will balance out over the same time frame.
The JV will have two operational units in Bonn, Germany, and Paris, and will be staffed by employees from the respective procurement departments of both groups. DT and France Telecom-Orange said they are also currently in talks with unions regarding the necessary set-up processes. Final agreement on the JV is expected to be signed in the coming weeks, but remains subject to board approval and antitrust clearance.
DT and France Telecom announced earlier this year plans to work on a wide-ranging partnership that was to include M2M standards and quality of service for cross-border services. Last year plans to combine their mobile operations in the United Kingdom that would form the country’s largest operator with 30 million customers
The move appears to be another significant cost-cutting decision by DT, which <a href= https://www.rcrwireless.com/article/20110320/CARRIERS/110329997/AT&T-Mobility-s-plans-for-T-Mobile-USA-set-to-cause-uproar-across-industry target=_
blank>last month announced it was selling off its U.S.-based T-Mobile USA Inc. subsidiary to AT&T Inc. for $39 billion.
“I am very excited to announce this new project with Deutsche Telekom,” said Olaf Swantee, EVP Europe and sourcing at France Telecom-Orange, in a statement. “By combining our procurement activities, our customers will benefit from the best networks, improved services and the widest choice of devices across our footprint. The new joint venture will offer a more efficient sourcing organization that will lead to more effective partnerships with suppliers. This will enable us to drive innovation and shape the development of technology in a way that meets customers’ needs.”
“Operators are expected to invest more than ever in networks and infrastructure as data usage increases exponentially and efforts to reduce the digital divide are being ramped-up,” said Edward Kozel, CTO at DT. “With France Telecom-Orange we have an experienced and trusted partner who shares the same approach regarding economies of scale as well as customer benefits in technology harmonization.”
Analysts were generally positive on the announcement, noting that while there is always risk in such ventures between large operators, the two operators seem to be committed to working together.
“Operator partnerships of this type are typically and justifiably met with some skepticism, but on the surface the deal appears well thought-out, clearly structured and highly focused,” noted Thomas Wehmeier, principal analyst at Informa Telecoms & Media. “The greatest risk to the success of the joint venture lies in its execution, but with both partners highly committed to the partnership and sharing well-matched motivations, those risks appear to have been recognized and mitigated.”
Wehmeier added that the move also continues recent deals between operators that are looking to strengthen their hand when dealing with suppliers as well as other third-party telecommunication companies.
“Europe’s mobile telecoms industry has just turned thirty and is growing up,” Wehmeier noted. “As the industry matures, it’s started to look outside the borders of the telecommunications sector to understand how other industries have gone through that same process of growing up. In particular, France Telecom and Deutsche Telekom must learn the lessons of best practice from the automotive industry, where strategic procurement deals of this type have long since been common place.”
