T-Mobile and Orange aim for £450m cuts in merger

The merger, which is due to be finalised by the end of October, could lead to hundreds of job losses as France Telecom, which owns Orange, and Deutsche Telekom — T-Mobile's owner — look to cut their costs in the UK by £445 million a year by 2014.

After the UK's third and fourth largest mobile networks merge, the combined entity will be the country's largest network with 28.4 million customers and a 37% market share.

In the UK, Orange has 12,897 employees and T-Mobile 6,132. Between them they own 658 high-street shops and they said today that they would close stores as part of the cost cuts. Other cuts are likely to be in call centres and administrative areas with T-Mobile headquartered in Hatfield and Orange in Bristol. Major cost savings will also come from closing duplicate mast sites saving millions of pounds in rent. Eventually the joint venture could be floated on the London Stock Exchange.

Industry experts said that today's detailed agreement showed that the two companies were significantly down the line on a deal. One insider said: "There is a great intent to complete this deal."

Analysts said the six weeks in which Orange and T-Mobile plan to do due diligence and draw up formal documentation could provide a narrow window of opportunity for O2 and Vodafone to come back with fresh bids for T-Mobile.

Each offered around £4 billion for it last month and were rejected by Deutsche Telekom on the grounds the offer was too low. But sources close to the number one and two operators in the UK said they were unlikely to come back with higher offers.

O2 and Vodafone would face much greater chances of being blocked by the Competition Commission because buying T-Mobile would take their market share to 43% and 40% respectively. Regulators are thought to be prepared to allow a deal which keeps market share below 40%.

The joint venture will be led by Brits with Tom Alexander of Orange as chief executive and Richard Moat of T-Mobile as chief operating officer.

The Orange and T-Mobile brands will continue to run separately for 18 months after the deal is done. Virgin Mobile — the fifth largest by customer numbers — is a virtual network operating over T-Mobile's system. It now has the option to shift but is said to be supportive of the merger.

Timotheus Höttges, chief financial officer of Deutsche Telekom, said: "We will become market leader — our customers will benefit in many ways, for example from the best mobile broadband offer in Britain.

"In the second biggest market in Europe, which is undoubtedly one of the toughest and most competitive, we are giving T-Mobile UK a clear and strong future."

The combined network would have revenues of £7.7 billion and headline earnings of £1.7 billion. France Telecom and Deutsche Telekom both expect it to boost earnings by 2011.