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DT Goes Double Dutch for $1.9B

Deutsche Telekom AG (NYSE: DT) has snapped up Orange (NYSE: FTE)'s Dutch mobile and broadband business Orange Netherlands for €1.33 billion ($1.9 billion) in cash. (See DT Buys Orange Netherlands.)

The deal makes DT the clear No. 2 contender to KPN Telecom NV (NYSE: KPN) in the mobile and DSL sectors in the Netherlands.

Once the acquisition is completed on October 1, DT will have 4.8 million mobile customers in the Netherlands, giving it a 27 percent market share.

KPN Mobile is the market leader with nearly 9 million subscribers (about 50 percent market share), while Vodafone Group plc (NYSE: VOD)'s Dutch operation has nearly 4 million subscribers and a market share of around 22 percent.

In the fixed access market, the acquisition gives it more than 600,000 broadband customers, making it the second biggest DSL service provider behind KPN, which has about 2.5 million DSL customers.

In the Dutch broadband market overall, though, DT will be only fourth, as cable operators @home, which has nearly 700,000 broadband customers, and UPC Broadband , with more than 600,000 broadband users, are bigger.

The acquisition is part of DT's M&A strategy to grow its international mobile assets, which have proved profitable. (See DT Plans M&A, IPTV Push.)

Ovum Ltd. analyst Raymond Yu notes that there are "still more profitable and less mature markets to 'grow' and invest in and increasing the scale of T-Mobile Netherlands may not solve all of its problems."

But the move should improve margins for T-Mobile Netherlands and provide it with greater opportunities in the mobile wholesale market, reckons the Ovum man, as there are more than 40 MVNO (mobile virtual network operator) players in the Netherlands that need a network partner. Yu notes that, so far, both T-Mobile and Orange have "been weak" in that business area to date, while KPN has been strong and has earmarked wholesale as a key part of its mobile growth strategy.

The German giant believes it can squeeze €1 billion in cost savings from merging its existing Dutch asset, T-Mobile Netherlands , with those of Orange Netherlands, with "around half of this being generated in the first six years, in particular from network integration and reduced marketing expenses," notes DT. Most of the rest will come from job losses: DT says the local workers' union was involved in the negotiation processes.

We first wrote about this deal in June, when France Telecom was buying Deutsche Telekom's Spanish broadband unit, Ya.com. These two incumbents clearly have something special going on. (See FT Buys Again in Spain.)

— Ray Le Maistre, International News Editor, Light Reading

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