Orange future unclear after Vodafone deal

Mannesmann is likely to have to squeeze out Orange, the UK mobile operator it bought in October, after the German operator agreed to be taken over by UK giant Vodafone Airtouch.

Analysts widely expect the European Commission to force Mannesmann to dispose of Orange to avoid creating a dominant force in the UK mobile market by combining Orange and Vodafone.

The fate of Orange, the UK's third largest mobile operator, is unclear. However, analysts said options for disposing of it include a floatation or a sale to a third party.

Tim Sheedy, analyst at IDC, believes the most likely outcome is an Orange floatation, rather than a sell-off to a competitor: "If they float it, they will create another smallish operator in the European market. It will be less of a competitive threat than if they sold it to a rival."

He added: "They may try and weaken Orange by offering attractive salaries to Orange staff to come across before it is floated."

Nicky Scott, senior consultant at Ovum, said they will definitely "have to get rid of Orange", and that if it is sold, the likeliest buyer will be France Telecom: "Orange is a good brand. Ever since its launch, it has spent a lot of time and money developing its brand. It has a fair few international operations to offer too."

She added: "France Telecom is the frontrunner to buy Orange. It missed out on One-2-One as it felt the price was too high."

Anser Rizvi, consultant at The Philips Research Group, also said that France Telecom is keen to pick up Orange, "although they've been denying this", he said.

Keith Mallinson, senior vice president of The Yankee Group Europe, said that Vodafone will not want Orange to be part of the new deal: "They don't want it. It was a problem, and Vodafone struck when it did to get a hold of Mannesmann before it was fully integrated."

Overall analysts agree that the merger gives Vodafone a strong position in Europe.

Sheedy said that if the deal between Vodafone and Mannessmann goes ahead, it will create "an absolute powerhouse in Europe...They will have the four big markets between them - Omnitel in Italy, SFR in France, Mannesmann in Germany and Vodafone in the UK."

Mallinson said: "This is the second phase in the mobile market. The first was colonising and getting out there. Now it's a more subtle process. Vodafone are expanding their geographic reach and will achieve economies of scale in procurement of infrastructure and international bandwidth."

He added: "They will be able to get better procurement deals from Ericsson and Nokia. Some of this will hit the bottom line profit and some will be passed on to customers in terms of better services, such as in the Wap [wireless application protocol] arena and wireless Internet."