Deutsche Telekom AG and France Telecom-Orange announced yesterday they have agreed to combine their procurement activities of customer equipment, network equipment, service platforms and IT infrastructure in a 50/50 joint venture starting with four pilot-projects. For this purpose they signed a non-binding Term Sheet which will be the basis for final contracts yet to be negotiated.
According to the France Telceom-Orange press release, with this procurement cooperation Deutsche Telekom and France Telecom-Orange will be entering a new era of smart industry cooperation. Both groups will be able to bring sustained benefits and savings to their respective customers as well as ensuring that their businesses will be more competitive. Suppliers will benefit through the harmonization of equipment and features that will enable them to streamline their development activities and further generate synergies and efficiencies.
For Deutsche Telekom and France Telecom-Orange, the run-rate after three years of implementation in potential global savings is estimated at above 400 million Euros and below 900 million Euros respectively. Savings from alignment for commercial benefit in network equipment in the first three years of the joint venture operations will be balanced out.
“I am very excited to announce this new project with Deutsche Telekom. By combining our procurement activities, our customers will benefit from the best networks, improved services and the widest choice of devices across our footprint,” said Olaf Swantee, Executive Vice President Europe and Sourcing at France Telecom-Orange. “The new joint venture will offer a more efficient sourcing organisation that will lead to more effective partnerships with suppliers. This will enable us to drive innovation and shape the development of technology in a way that meets customers’ needs.”
“Operators are expected to invest more than ever in networks and infrastructure as data usage increases exponentially and efforts to reduce the digital divide are being ramped-up,” said Edward R. Kozel, Chief Technology and Innovation Officer of Deutsche Telekom. “With France Telecom-Orange we have an experienced and trusted partner who shares the same approach regarding economies of scale as well as customer benefits in technology harmonization.”
The jointly owned and operated entity will have two operational units in Bonn and Paris, and is meant to provide measurable value in terms of experience and economies of scale for the benefit of both groups and their respective customers.
The operational units in Paris and Bonn will be staffed by employees from the respective procurement departments of both groups that already deal with purchasing customer equipment, network technology, service platforms, IT-Infrastructure and procurement engineering. Deutsche Telekom and France Telecom-Orange are currently in talks with unions and its social partners regarding the necessary set-up processes. The final agreement is expected to be signed in the coming weeks, and remains subject to the necessary board approvals at Deutsche Telekom and France Telecom-Orange. In addition, the creation of the procurement joint venture will be subject to antitrust clearance.
The procurement joint venture is the result of bilateral exploratory talks between Deutsche Telekom and France Telecom-Orange, following the joint announcement in February this year to identify potential areas of cooperation in radio access network sharing in Europe, WiFi roaming, equipment harmonization, Machine-to-Machine (M2M) services and a set of new growth business development areas.