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T-Mobile Netherlands to Merge With Tele2

Iain Morris

T-Mobile Netherlands has agreed to buy rival Tele2 for €190 million ($224 million) and a 25% stake in the combined company.

The deal, announced today in a statement by T-Mobile Netherlands owner Deutsche Telekom AG (NYSE: DT), would leave the Netherlands with just three mobile network operators, including incumbent telco KPN Telecom NV (NYSE: KPN) and VodafoneZiggo, besides the merger between T-Mobile and Tele2.

The combined company would generate annual sales of about €2 billion ($2.4 billion) and serve around 4.3 million postpaid mobile customers. It expects to generate annual cost savings of about €150 million ($177 million) within three years of closing the transaction.

Deutsche Telekom said its strategy would be to "attack" the "market-leading duopoly" of KPN and VodafoneZiggo by offering a combination of fixed and mobile services to Dutch consumers.

The language about "duopoly" is clearly aimed at preempting regulatory authorities generally worried about the impact of merger activity on competition in the market.

"This duo has been getting away with this game for far too long and there was only one victim, namely the customer!" said T-Mobile CEO Soren Abilgaard, in a prepared statement that executives will undoubtedly brandish in righteous indignation should authorities oppose the arrangement. "We will be able to compete against the duopoly much more efficiently and give Dutch customers a fair choice."

Despite its strategy of developing fixed and mobile capabilities in each of its geographical markets, Deutsche Telekom sold its Dutch fixed-line business several years ago and has subsequently been hamstrung by its lack of a major fixed-line offering as rivals have developed their own fixed-mobile capabilities.

The 2016 merger between mobile operator Vodafone and cable company Ziggo has put further pressure on T-Mobile in the small Dutch market. While T-Mobile picked up Vodafone's existing fixed-line business as a regulatory condition of that deal, this unit served only 150,000 customers at the time.

That number had risen to about 188,000 at the end of September, when T-Mobile had about 3.9 million mobile customers. The company generated €327 million ($386 million) in revenues in the third quarter, down 1.5% compared with the year-earlier quarter, while its EBITDA rose 7.7%, to €98 million ($116 million), over the same period.

With the takeover, it will acquire a business that had 332,000 fixed broadband customers on its books at the end of September, along with 1.2 million mobile customers.

Tele2's Dutch operation made 726 million Swedish kronor ($86 million) in revenues in the third quarter, 1.6% less than in the year-earlier quarter.

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

The tie-up will also bolster T-Mobile's spectrum holdings, giving it additional licenses in the 800MHz and 2.6GHz bands. The new-look entity would furthermore have much stronger distribution capabilities thanks to the combination of T-Mobile's shops with Tele2's highly regarded online sales channel.

Before completing the transaction, T-Mobile said it would spin off its Dutch towers business and rooftop assets into a separate legal entity under the ownership of full Deutsche Telekom.

There has long been speculation about the future status of T-Mobile Netherlands, with earlier press reports suggesting that Deutsche Telekom was looking to sell the asset. (See DT Shakes Up Management at Dutch Operation .)

While the acquisition of a bigger fixed-line business addresses one of the subsidiary's shortcomings, Deutsche Telekom seems more focused on activities in its central and eastern European markets, where it is it trying to replace the legacy networks serving individual countries with a single pan-European cloud. (See DT's Pan-Net Still at Start of the Marathon.)

— Iain Morris, News Editor, Light Reading

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