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BT and EE to merge in weeks after deal gets final approval

Acquisition of mobile network operator is expected to conclude at the end of January after Competition and Markets Authority gives go-ahead

Alex Scroxton
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Published: 15 Jan 2016 9:16

BT will complete its acquisition of mobile network operator (MNO) EE on 29 January and will begin work on incorporating the mobile business into the wider BT Group, after the Competition and Markets Authority (CMA) gave final approval to the £12.5bn deal.

After the acquisition is sealed, EE will function as a distinct line of business within the BT Group, led by Marc Allera, who will become EE CEO after completion, at which point current incumbent Olaf Swantee will step aside, as previously reported.

At completion, EE parents Deutsche Telekom and Orange will hold 12% and 4% of BT shares, respectively, and Deutsche Telekom will be able to name a representative to the BT board.

The CMA has conducted a rigorous, complex and detailed assessment of the deal and concluded that despite a range of concerns raised by rival operators and customers, and its own previous misgivings, the merger was not expected to result in a substantial lessening of competition in any markets in which the two firms function, including retail mobile and broadband.

It paid specific attention to how the acquisition might alter the merged company’s incentives to continue to supply wholesale network services and connectivity to other communications services providers.

Inquiry chairman John Wotton said: “As BT is a smaller operator in mobile, it is unlikely that the merger will have a significant effect.

“Similarly, EE is only a minor player in retail broadband, so again it is unlikely that the merger will have a significant effect in this market.

“In supplying services such as backhaul, wholesale mobile or wholesale broadband services, a combined BT and EE would not have the ability and the incentive to disadvantage competitors such that there would be significant harm to competition.”

Wotton also acknowledged concerns about Openreach and its regulation by Ofcom, but said the CMA’s job was to look first and foremost at the impact of the merger on competition and consumers, and that the future of Openreach was of more relevance to the ongoing Ofcom market review, the conclusions of which are expected to be announced towards the end of February.

BT CEO Gavin Patterson welcomed the CMA’s decision to approve the acquisition, unconditionally and without remedies. “The combined BT and EE will be a digital champion for the UK, providing high levels of investment and driving innovation in a highly competitive market,” he said.

“I have no doubt that consumers, businesses and communities will benefit as we combine the power of fibre broadband with the convenience of leading-edge mobile services. I look forward to welcoming EE into the BT family.”

Persistent objections

Dan Howdle, telecoms expert at mobile and broadband comparison site Cable.co.uk, said: “There can be no doubt as to the power over the UK consumer telecoms market that BT EE now wields, which is precisely why the wider industry has persistently urged the CMA not to rush ahead with this decision, but to take into consideration, and to fully explore, their commonly held objections.” 

Howdle said that although the CMA had been widely expected to approve the deal, the ruling was made in the face of strong objections from the likes of O2, Sky, TalkTalk, Virgin Media and Vodafone, which voiced concerns over the percentage of the 3G and 4G spectrum that BT will now own, and complained that the deal gave it too much power to moderate the wholesale of network capacity, especially to mobile virtual network operators (MVNOs) such as Virgin Mobile, itself an EE customer.

“Sky, for example, has been at pains to point out that not only are there – in its opinion – fundamental flaws in the economic analysis performed by the CMA, but that the CMA itself contains dissenting members who appear to share the view that the merger will prove a disaster for UK telecoms and, in turn, for consumers,” said Howdle.

“The CMA believes the new merged company is, by default, financially incentivised to continue to supply wholesale services to other providers, which will prevent it from closing its doors to third-party operators in an attempt to monopolise its own network infrastructure.

“The greatest concern for its competitors is that, though unlikely – as the CMA points out – no firm measure has been put in place to actively prevent it.”

Labour's Chi Onwurah, shadow digital minister, also voiced worries over the process: "My concern, particularly on the wholesale issue, was that it wasn’t forward-looking enough so it looked at what we had now but it didn't seem to be looking at what would be the situation in two, three, four years when we have had even more consolidation."

The end of EE?

CCS Insight analyst Kester Mann said he thought it was ultimately inevitable that BT would replace the EE name, but cautioned that it would be unwise to rush into it.

“The EE brand has benefited from strong investment to become synonymous with widespread 4G coverage,” he said. “A greater priority for BT is the behind-the-scenes integration of the UK’s largest fixed-line and mobile operators. Only then should it look to articulate changes to consumers.”

Mann suggested that BT would be challenged by its legacy association with fixed-line services, particularly among younger people who may be unaware that it once owned O2. A way round this could be to offer BT products and services through EE stores, or use EE’s name on BT’s fledgling BT Mobile marketing collateral to establish an association in the minds of consumers.

Read more about network consolidation

  • Mobile network consolidation spreads to France as Orange confirms it is in discussions to buy local rival Bouygues.
  • Three argues it will not hold enough mobile spectrum to compete effectively against the BT-EE combination if it is stopped from buying O2.
  • Vodafone and Virgin Media owner Liberty Global terminate talks over a future relationship, including a potential swap of network assets.

“The deal paves the way for significant high-street rebranding,” he said. “BT’s lack of retail presence is its Achilles’ heel, but converting EE shops will enable it to present and communicate bundles of mobile, broadband and TV face-to-face. This could give it a major boost as the UK market inexorably evolves towards multiplay.”

But on the enterprise side, a more sensible option could be for BT to phase out the EE brand as quickly as possible to benefit from the association with its services business, said Mann.

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