Behind the scenes of the Orange and T-Mobile merger

What happens when two telecommunications giants come together? Olaf Swantee, who led Orange Group’s Europe division before a merger with T-Mobile, and then became CEO of newly formed EE, shares the lessons he learned.

It’s a well-known fact that most mergers, acquisitions and joint ventures either fail outright, or don’t deliver on their original promise. There are plenty of statistics that consultants can show you to demonstrate this.

I am fortunate to have been involved in one of the success stories: the Orange and T-Mobile joint venture, which later became the company called EE.

It’s impossible to provide a tick list to guarantee the success of any joint venture. Just as each of us has our distinct personality traits, quirks and subjective beliefs, every company has its own nature – its own culture, processes, infrastructure, priorities and habits. Bring two of these diverse entities together and, well, you can imagine.

So, while I can’t promise any silver bullets, I can tell you about what helped us join Orange and T-Mobile together, and ultimately create a new company that delivered even greater success.

‘Merger and acquisition deals are always a ‘win-win’ on paper. However, one of the most challenging phases is immediately after the ink is dry and the Champagne bottle is empty’

The right conditions

For the last 25 years or so, the British mobile telecommunications market has been in a state of flux. Most of the network operators have either owned, been owned by, or forged alliances with each other. This means that brands and businesses have continually come, gone or evolved.

During the early noughties, the market had stagnated, with relatively little investment. All of the operators were pretty firmly entrenched into the positions they had dug out for themselves and it was difficult to see clear differentiation. Services were all about voice, text and a little bit of web on the move.

Meanwhile, the world had been changing. The internet had been with us for 20 years, and the smartphone market really started to boom in 2007, catapulting ‘anytime, anywhere’ online access (and expectations) into our pockets.

It was time for something new. That something was to be a joint venture between Orange and T-Mobile, which would create a single entity called Everything Everywhere. It became the UK’s number one – in scale at least – overnight.

Clear rules of engagement

Merger and acquisition deals are always a ‘win-win’ on paper. However, one of the most challenging phases is immediately after the ink is dry and the Champagne bottle is empty.

It is a strange time. You are, in effect, ‘sleeping with the enemy’, working closely enough together that you will not fall flat on your face if the deal gets all of the necessary approvals, but with enough distance and discretion that both parties can continue trading competitively in the meantime.

If there is ever a good time for the word ‘governance’, this would be it.

‘If there is ever a good time for the word ‘governance’, this would be it’

A small, six-strong board of directors was created, with equal representation from each of the merging businesses and their parent companies, France Telecom and Deutsche Telekom. This group was responsible for agreeing the six critical success factors that would lay the foundations for the new company:

• 1. Ambition
  Setting the bar high enough, while being realistic about likely outcomes. Many joint ventures have failed because the ambition was too high.
• 2. Empowerment
  Making sure the management team is empowered, right from the start. The board of directors recognised that you can’t run a British company from Germany and France. It had to be run from the UK with clear reporting lines and responsibilities back to Bonn and Paris.
• 3. Transparency
  It is essential to have a tight top team – from the very beginning – that respects each other and is able to work together in an open and honest way.
• 4. Governance
  Striking a balance of the required governance, while enabling the business to get on with the job in hand, is extremely important. There were only a few sub-committees and the board of directors always tried to limit bureaucracy.
• 5. Decisions
  Who has the final say? With a 50-50 joint venture like ours, the shareholders and board of directors had to accept that the joint venture CEO and CFO would act as the final decision-makers for many issues.
• 6. Adopt and go
  The tendency in a merger or a takeover is to rethink everything. The concept of ‘adopt and go’ forces you to decide between only what exists already in both organisations – between the best individuals, the best IT stack, the best product set and so on. It allows you to be nimble and move quickly, although some of the decisions and losses can be painful.

Having these principles in place very early laid the path for the two integration teams to work together in a clearly defined way, once the deal was approved.

Bringing employees on board

When two businesses come together, this threatens to upset the apple cart in many ways. Human beings are hardwired to seek familiarity and security after all. Clearly, one of our fundamental tasks was to make sure that the employees at T-Mobile and Orange were kept informed and engaged throughout the process.

‘It is your responsibility to stay driven, even though you may be the first to lose your job’

So how do you maintain momentum and reduce demotivation and uncertainty? These are some of the things we learned from the merger, which we later applied to drive a better result when BT announced its intent to buy EE.

• Demonstrate credibly and frequently to your employees that the new combined company builds on what exists today. Show that it is an evolution of their work and a testimony to what has been delivered so far, not a wholesale reinvention
• Limit the information about the integration planning activities to an absolute minimum until just a few weeks before the actual integration. It will always be incomplete and you will not be able to answer the specific concerns of individuals until you actively kick-start the integration work in any case
• If necessary, establish additional clear retention and performance award programmes for your critical performers
• Make sure and then clearly communicate that any people selection will be fair, balanced and based on true performance
• It is critical for the leader of the business to stay focused. If you take your eye off the ball because you are unsecure about your own future, your employees will do the same. It is your responsibility to stay driven, even though you may be the first to lose your job

The thing that told me we got this right during the BT acquisition was seeing EE’s internal and external employee engagement results – its best ever. These were based on surveys that were carried out during the integration planning phase, normally a time of heightened insecurity and fear.

Setting a clear purpose and vision

Most management theory will tell you that it is crucial to have your vision and plan ready before you start the job to transform a business. It’s a view that I held firmly for many years. The argument goes that, without the vision, there is no context for the changes you need to make.

‘Without the vision, there is no context for the changes you need to make’

We actually began building the vision for joint venture after restructuring the management team and establishing a leadership style. It worked fine. It actually allowed me to be even clearer about our priorities, because I’d had more time to truly understand the opportunities and the risks. In the end, I announced the vision and the new plan for the business five months after I started.

In my experience, the best transformative vision will always focus on how it will change the existing environment once you have achieved it. You have to be able to talk about the difference in people’s lives, in the market position, in the workplace and in the financial position. Ultimately, you need to ask, “What will our future look like if we achieve this vision?”

We tasked ourselves with doing something different. Something epic.

I’ve already mentioned that the market conditions were stagnant. Meanwhile, the pace of technology change was getting ever faster. Despite this, Britain’s digital infrastructure had fallen behind those of many other countries around the world – despite Britons commuting more, using the Internet more and growing their mobile subscriptions at a faster rate.

We had to look ahead and think about the type of provider that the people and businesses of Britain needed, and deserved. This gave us the foundations for a new purpose, which we based on the core of our business – the mobile network itself.

The 4G Mobile Revolution: Creation, innovation and transformation at EE, by Olaf Swantee and Stuart Jackson

A new brand

Creating a new brand was one element of a four-part plan to move the joint venture from a position of stability to one of disruption and leadership within the industry. Another was to launch a 4G network, two years ahead of the government’s existing timeline. We believed that our network plan was crucial for our customers, our company and our people – but, most importantly, for UK society.

If you have ever been involved in the creation or evolution of a brand, you will be familiar with the mountains of research that are generally involved. In our case, Vodafone was the brand linked to network innovation and strength. We wanted this for the joint venture so we could drive success in the business-to-business market, where market share for both Orange and T-Mobile was limited.

We also had other considerations. I wanted to create a fresh, modern company culture. There were many positive elements in the existing cultures, but some of them created an environment that was not set up to succeed. The existing company name had also become a burden. Representative of a bigger, better, stronger network from which you can access ‘everything’ you want ‘everywhere’ you go, it had been launched when the network was not performing well enough to make that claim.

All the evidence pointed towards the need for a new brand. It was risky and challenging, but when EE was brought into the world on 30 October 2012, I knew that we had done the right thing.

Transforming a business

Any venture to join two organisations together is a huge endeavour with a lot of moving parts. But if I had to boil down what I think it takes to transform a business – which is really what we did – there are three key elements:

• 1. Purpose
  Having a clear purpose. I firmly believe that every business needs to identify its purpose beyond the balance sheet, how it will make a positive difference and change things for the better.
• 2. Process
  The way you go about running a business is also incredibly important. You have to be able to tell what’s going right (and do more of it) and when things are going wrong (and how to change them). The processes in your business will make or break your success.
• 3. People
  It might sound like a cliché, but a business really is nothing without its people. Having the right people in the right place doing the right things is an absolute essential. Your people are your business, so make sure you have a great team.

Ultimately, what we achieved together was fantastic. We took two businesses that were worth £8.5bn combined, created a new company and sold it five years later for more than £12.5bn – and it all started with the Orange and T-Mobile joint venture.

By Olaf Swantee

Olaf Swantee is the former chief executive of mobile phone operator EE (formerly Everything Everywhere). He is now CEO and management board member at Sunrise Communications Group AG, the largest private telecommunications provider in Switzerland.

Swantee is also the co-author of new book, The 4G Mobile Revolution: Creation, innovation and transformation at EE, published by Kogan Page and priced £19.99.