[Satellite News 04-18-11] Satellite pay-TV and telecom operators France Telecom and Deutsche Telekom have established a joint venture that will oversee about $13 billion in combined annualized spending between the two major European companies. The April 18 announcement follows a statement of intent that was issued by the companies earlier this year, which outlined steps towards a potential cooperation between France Telecom and Deutsche Telekom business operations.
    The joint venture will launch in the fourth quarter after both boards sign-off on the deal and receive approval from anti-trust authorities in a number of markets where the two operators compete. The deal will affect the purchase of roughly 45 million smartphone devices provided annually across the two groups.
    Informa Telecoms & Media Principal Analyst Thomas Wehmeier told Satellite News that he believes the deal is “well thought out, clearly structured and highly focused,” despite skepticism regarding the move coming from various analysis firms following the announcement.
    “Operator partnerships of this type are typically and justifiably met with some skepticism,” said Wehmeier. “Nothing motivates like money, and the goal of securing 1.3 billion euros ($1.85 billion) in annualized savings by 2014 will certainly give strong impetus to the joint venture. What is more, the procurement plans announced today only cover the one-third of the two groups’ combined annual spend of around $56.8 billion that is deemed ‘immediately accessible,’ a sure sign that there is scope for additional synergies further down the line.”
    Criticism about the deal focused on France Telecom and Deutsche Telekom’s ability to execute and follow through with the partnership. When first proposed, European analysts said they doubted whether the partnership would provide any real value to either entity. According to Wehmeier, however, both partners appear highly committed to the partnership and share well-matched motivations.
    “Those initial risks appear to have been recognized and mitigated. The deal is very much a sign of the times. Europe’s largest operators have been cozying up to one another more and more as they seek to strengthen their hands at a time when competitive pressures have emerged from an increasingly diverse range of players, most notably from players based out of Silicon Valley and China,” said Wehmeier. “As they roll out smart networks and distribute smartphones to the users, this type of smart industry cooperation can only help to strengthen the negotiating hand when dealing with suppliers that in many cases are also deemed competitive threats to their business.”
    In the announcement, the telecom partners said that once the joint venture is in place, not all contracts would face immediate scrutiny from operators committing to a step-by-step approach to renegotiate each contract as it comes up for renewal. Wehmeier said although this language translates to an inevitable downside for vendors dealing with both companies, changes to existing partnerships would be felt gradually.
    “The two industry giants alluded very clearly to the prospect of their strategic suppliers being able to use this change in procurement strategy both as a way to develop more proactive and deeper relationships but also as a way to sell more efficiently to the operators themselves. A key aim is to speed up the process of bringing innovation to market, whether that’s in the form of new technologies, devices or services, and that can only be achieved by agreeing contracts built on mutually acceptable terms,” Wehmeier said.
    Both France Telecom and Deutsche Telekom already share networks in some European markets. Because the partnership would provide joint procurement across both companies’ entire footprint, Wehmeier said that the success of such a move would lead to further consolidation in the region. “As the industry grows up and as operators make the migration to LTE, it’s inevitable that further consolidation of operators will take place in Europe. Whilst huge corporate mergers are off the table for now, the prospect of rational consolidation on a market-by-market basis is likely to be very much on the table as discussions take place.”