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DT and FT to buy in bulk

Deutsche Telekom (DT) and France Telecom (FT) have formed a joint venture for procurement.  Shouldn’t they just merge and get it over with?

In the Orange announcement last week, the two telecommunications companies are establishing a “50/50” joint venture in the fourth quarter of 2011.  After three years, the two expect to save a combine 1.3 billion Euros due to economies of scale and “technology harmonization.”

The joint procurement activities include customer equipment, network equipment, service platforms and – starting with four pilot projects – IT infrastructure.  Today, the two have a non-binding term sheet which will be the basis for final contracts in the future.

DT/FT are billing this as a “new era of smart industry cooperation” and expect to get “sustained” benefits and savings to their customers and ensuring their businesses will be more competitive.

After three years, the run rate in “potential” global savings to be more than 400 million Euros and below 900 million Euros respectively for the two firms (so DT saves 400M Euros, FT, a little less than 900M Euros).

The jointly owned and operated procurement entity will have two offices in Bonn and Paris, but DT and FT are currently in talks with unions and need board approval. There’s also the tricky matter of antitrust clearance.

DT and FD did some “exploratory talks” in February 2011 to identify cooperation in radio access network sharing in Europe, WiFi roaming, equipment “harmonization” (i.e., using the same gear), M2M services, and a set of new growth business development areas.

At this rate, I’m expected some sort of “still closer” ventures down the road and it wouldn’t surprise me if the two companies tried a merger in the future.  It may sound politically insane on the one hand, but on the other hand, Europe built EADS and Airbus, so it’s not inconceivable for the two to become one…

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