April 18, 2011 / 6:40 AM / 9 years ago

UPDATE 3-France Tel, Deutsche Tel form JV to cut costs

* Joint venture to buy network gear, mobiles, IT systems

* Savings estimated at 1.3 bln euros a year after 3 years

* Builds on earlier co-operation between the two groups

* Could put more pressure on telecom gear vendors

(Adds details from press conference, vendors)

By Leila Abboud

PARIS, April 18 (Reuters) - France Telecom FTE.PA and Deutsche Telekom (DTEGn.DE) plan to jointly buy network gear, mobiles and other information technology to save money, the two groups said on Monday.

The project could save about 1.3 billion euros ($1.9 billion) annually after three years — a little under 900 million euros for France Telecom and around 400 million for Deutsche Telekom, they said.

The venture is an extension of a co-operation initiative the two groups unveiled in February covering areas such as mobile network sharing in Europe and giving customers wireless Internet on each other’s networks. [ID:nLDE71A0YO] [ID:nLDE73E1U2]

European telecom operators face sluggish growth and tough price competition and are searching for ways to cut costs to improve profitability.

With the advent of smartphones and tablet computers, data traffic is exploding on networks, requiring steep investments.

“We see significant growth in data and pressure on tariffs, so our procurement needs to be as efficient as possible,” said Edward Kozel, Deutsche Telekom’s director of technology.

The new venture will begin to renegotiate some 13 billion euros worth of contracts in the fourth quarter, said France Telecom executive vice-president Olaf Swantee.

NETWORK SAVINGS

The companies expect the biggest savings to come from network gear. They also hope to save on the 45 million handsets they buy a year.

Supply firms in the firing line include equipment makers like Alcatel-Lucent ALUA.PA, Ericsson (ERICb.ST) and Nokia-Siemens Networks [NSN.UL].

“It means another headache for the supply industry,” said Paolo Pescatore, analyst at CCS Insight.

The two companies are already trimming their portfolios to focus on countries where they have scale. Deutsche Telekom is selling its T-Mobile USA unit to AT&T (T.N) while France Telecom is reviewing European operations outside France. [ID:nLDE73C0IM]

Several analysts on Monday said the JV could rekindle speculation on an eventual tie-up but banking sources told Reuters recently that such a deal was unlikely. [ID:nLDE73323S]

France Telecom shares were down 0.8 percent at 15.52 euros, while Deutsche Telekom’s were flat at 11.25 euros by 0906 GMT. (Additional reporting by Marie Mawad and Tarmo Virki; Editing by David Cowell) ($1=.6918 Euro)

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