France Telecom-Orange and Deutsche Telekom AG on Monday announced plans to form a joint venture that would negotiate the purchase of equipment and IT infrastructure, saving the global telecommunications giants an estimated 1.3 billion euros annually.
The companies have inked a non-binding term sheet to combine the procurement activities of customer equipment, network equipment, service platforms and IT infrastructure under a joint venture that is expected to begin operating in the fourth quarter of 2011.
“The new joint venture will offer a more efficient sourcing organisation that will lead to more effective partnerships with suppliers," said Olaf Swantee, EVP Europe and Sourcing at France Telecom-Orange.
After the joint venture has been implemented for three years, Deutsche Telekom expects to save about 400 million euros on an annual basis while France Telecom anticipates yearly savings of around 900 million euros.
In an investor presentation, the companies said they aim to obtain better prices, improve relationships with key vendors and exert greater influence on innovation and standards.
The joint venture builds on earlier collaboration between France Telecom and Deutsche Telekom.
In February the companies announced a collaboration to explore potential areas of cooperation in such areas as radio access network sharing in Europe, equipment standardization and improving Wi-Fi user experience while roaming. France Telecom and Deutsche Telekom also have partnerships in the United Kingdom and Poland.
The newly formed joint venture will oversee nearly $13 billion in combined annual spending and affect the purchase of roughly 45 million devices annually, said Thomas Wehmeier, principal analyst at Informa Telecoms & Media, in a research note.
“Operator partnerships of this type are typically and justifiably met with some skepticism, but on the surface the deal appears well thought out, clearly structured and highly focused," the analyst said.
Although France Telecom and Deutsche Telekom are some of the largest operators in the world, the companies said they don’t compete with each other in too many places – they only overlap in five out of 50 countries.
The companies expect to sign a final agreement in the coming weeks, and it is subject to board approvals and antitrust review.
Existing procurement experts within France Telecom and Deutsche Telekom will staff the joint venture, which will have operate out of Bonn, Germany and Paris.
The companies noted that their peers, such as China Unicom and Telefonica, have recently launched similar colloborative initiatives in the area of procurement.
