* Rivals could benefit if JV partners struggle to integrate
* Analyst says deal is best outcome for Vodafone, O2
* JV unlikely to ditch Orange brand
By Kate Holton
LONDON, Sept 8 (Reuters) - Deutsche Telekom and France Telecom's deal to combine their UK units faces big challenges despite potentially large savings for the two groups, and may benefit rivals in the short term.
Analysts said Deutsche Telekom and France Telecom may have made life easier for the rivals by reducing the number of operators jostling for share, and any delay or conflict between the two partners could magnify this advantage.
"We are not naive," said Gervais Pellissier, France Telecom CFO, on a conference call with media and analysts. "There will be disagreements."
Deutsche Telekom and France Telecom said on Tuesday they planned to merge their British mobile units in a 50:50 joint venture that would grab the top spot ahead of current leaders O2 of Telefonica and Vodafone.
But the move will help all operators as the new entity focuses on integration in a sector where customer loyalty is low.
"In our view this is the best result for Vodafone and Telefonica," RBS said in a note to clients. "We remain nervous that longer term the JV may have to compromise on strategy, while they benefit from a consolidated market without having to commit capital."
Citigroup analyst Terence Sinclair also suggested that the new joint venture would be likely to focus on building profitability rather than grabbing as many customers as possible, meaning that prices would stay firm for others.
Other analysts pointed out that partnerships have often proved difficult in the telecoms industry, such as Vodafone's ventures in the United States and France.
But one banker on the deal told Reuters the agreement was a way of bringing about change at minimal cost in a difficult market and still creating billions of pounds of synergies.
"An operator who paid (for consolidation) would be a gift to everyone else," he said.
The joint venture deal follows months of speculation that either of Vodafone or 02 would bid for T-Mobile UK, after it said it would consider all options following a massive writedown.
The main operators had all opened up to the idea of in-market consolidation after seeing pressure on prices slash operating margins to well below European averages.
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The new joint venture may also face other challenges, in terms of appeasing British and European regulators and deciding which brand, if either, will survive.
The companies said they would maintain the same brands -- Orange and T-Mobile UK -- for the next 18 months and then agree with shareholders on the next move.
They could continue to run both brands, choose one or create something new entirely, although Orange is unlikely to want to ditch the brand it uses across its portfolio, especially in the market where it launched.
"We both have huge brand loyalty in the UK and spent a lot of money to build that up," Orange UK chief executive, and head of the new joint venture, Tom Alexander, told reporters. "That won't be thrown away lightly."
That kind of debate however worried analysts, who were looking further down the line for any disagreements.
Robin Bienenstock, analyst at Sanford Bernstein, said that the synergies would be "large and meaningful" yet she noted further cost reductions would be hampered if the firms kept both brands alive.
"If they don't cut one of the brands eventually, the synergies will be one billion lower than they say they will be," said Bienenstock.
Hours after the companies outlined their plans for the new venture, analysts and industry insiders were already looking further down the line, to how long the venture would last.
Industry sources familiar with the negotiations said the joint venture could eventually be floated or Deutsche Telekom could sell or float its stake, but added there was no rush.
Deutsche said it was committed to 3 years to the venture.
(Additional reporting by Nicola Leske, Kirstin Ridley and Leila Abboud, Editing by Sitaraman Shankar)