Estimated opex-based synergies should reach an annual run rate of over £445 million from 2014 onwards.
• The key areas for the opex synergies of the joint venture are:
 Network & IT: Large-scale site rationalisation leading to significant savings notably in site rental expenses, network operations and maintenance expenses
 Distribution and Marketing: Higher proportion of sales through own shops, resulting in lower distribution costs; a reduction in the combined number of stores and savings in marketing costs primarily post roll-out of a new branding strategy
 Other cost savings: Potential to reduce general and administration costs; eliminate duplication in core support functions; optimise the workforce notably in customer service, network and G&A operations
To achieve these opex synergies, the joint venture would expect to invest £600 to £800 million in integration costs over the period from 2010 to 2014. Those costs would primarily relate to the decommissioning of mobile sites, the rationalisation of the network of retail stores and the streamlining of operations.
• On the capex side, large scale savings are expected over the first five years following completion of the transaction, resulting from the integration and unification of the networks and from jointly expanding 3G coverage. The potential for capital expenditure savings, net of integration capex, is estimated at £620 million on a cumulative basis over 2010-2014, prior to stabilising at approximately £100 million a year from 2015 onwards.
These benefits will result in significantly improved operational performance, with long term EBITDA margin expected to be superior to those of the current market leaders thanks to size effects and with capex efficiency expected to be best in class.

To create the new joint venture, Deutsche Telekom would contribute T-Mobile UK on a cash-free, debt-free basis, including T-Mobile UK's 50 percent holding in its 3G network joint venture with Hutchison and gross tax losses carried forward of at least £1.5 billion. France Telecom would contribute the whole of Orange UK including £1.25 billion of intra-group net debt in order to equalize the value of the contributions to the joint venture. Immediately after closing Deutsche Telekom would grant a £625 million shareholder loan to the joint venture, which would be used to simultaneously reimburse £625 million to France Telecom. As a result, the joint venture would have indebtedness of £1.25 billion, represented by two shareholder loans of £625 million held by each of Deutsche Telekom and France Telecom.

The Board of the new joint venture company will have balanced representation from Deutsche Telekom and France Telecom. The management team would be led by Tom Alexander, currently CEO of Orange UK, as CEO and Richard Moat, currently CEO of T-Mobile UK, as COO. The governance of the joint venture would attribute extensive operational decision-making to the management team.

The T-Mobile UK and Orange UK brands will be maintained separately for 18 months after completion of the transaction. During that period management will review branding alternatives for the joint venture and will develop a new branding strategy recommendation for shareholder approval.

This transaction is expected to create substantial value for both shareholders and to be accretive from 2010 in terms of free cash-flow per share and from 2011 in terms of earnings per share. Both Deutsche Telekom and France Telecom would recognise their respective interest in the joint venture using the equity method after closing. It is planned that the joint venture will distribute 90 percent of its free cash flow to its two shareholders.

Prior to the signing, which is expected to be end of October, both Deutsche Telekom and France Telecom will undertake confirmatory due diligence and will complete the definitive documentation. The final agreement is subject to the approval of the Supervisory Board of Deutsche Telekom and the Board of Directors of France Telecom, and the completion of an agreed transaction would be conditional on approval by the relevant competition authorities.

A conference call for investors and journalists will be held at 8:30 (London time) to present the details of this operation.
To participate in this conference, dial:

1.  from France: 01 70 99 42 83 or 01 71 23 08 27
2. from the United Kingdom or any other country: +44 (0) 20 7138 0840
3.  dial-in code: 6437899

A replay of this conference will also be available for 7 days from the following numbers:

1.  from France: 01 74 20 28 00 
2. from the United Kingdom or any other country: +44 2079 847 578
3.  dial-in code: 6437899