UPDATE GBP12.5bn BT and EE Merger Gains Provisional UK Approval

The Competition and Markets Authority has today “provisionally” cleared the £12.5bn merger between national telecoms giant BT and mobile operator EE because the deal is “not expected to result in a substantial lessening of competition [SLC] in any market in the UK.”

In fairness today’s outcome shouldn’t come as much of a shock, not least since Ofcom told the CMA during August 2015 that they didn’t have any major objections to the deal and suggested that existing regulation could tackle most concerns (here).

The risk of competition overlap is also lower because BT tends to be a fixed line operator, while EE are almost exclusively focused on mobile. In other words, the regulator would have been more concerned had the merger resulted in one less mobile and or fixed line provider.

The CMA was thus “unanimous” in provisionally finding no SLC in relation to all but one of the markets reviewed. In relation to the wholesale mobile market, the group was evenly divided over whether the concerns it investigated gave rise to an SLC, but since a finding of SLC requires a two-thirds majority of the group then this did not present a problem.

John Wotton, CMA Inquiry Chair, said:

“We recognise that this is a merger which is important to many consumers and businesses. We have heard a number of concerns from competitors. After a detailed investigation, our provisional view is that these concerns will not translate into a competition problem in practice.

We provisionally think that the retail mobile market in the UK, with 4 main mobile providers and a substantial number of smaller operators, is competitive. As BT is a smaller operator in mobile, it is unlikely that the merger will have a significant effect on competition. By the same token, it is unlikely that the merger will have a significant effect on competition in the retail broadband market, where EE is only a minor player.

We have also been looking at the ways in which, as a merged company, BT/EE might try to disadvantage competitors which it supplied with services such as backhaul, wholesale mobile or wholesale broadband services. We have provisionally found that in some areas it is unlikely that they would have both the ability and incentive to do so – and in others that the effects of their attempting to do so would be limited.

Having considered all the evidence, the group does not provisionally believe that, in a dynamic and evolving sector, it is more likely than not that BT/EE will be able to use its position to damage competition or the interests of consumers.”

It’s important to stress that the CMA’s remit wasn’t to investigate the entire telecoms market and on that front they point to Ofcom’s on-going Strategic Review, which among other things is examining the controversial question of whether or not to split BT from control of their national fixed line phone and broadband network (Openreach).

However, given today’s outcome, there may now be a question mark over Ofcom’s semi-related proposal to force BT into opening up their Dark Fibre network for use by rival operators (here), although we suspect that this direction will be upheld under the regulator’s forthcoming Strategic Review.

Readers can view the provisional decision (PDF, 333KB, 15 pages) online and the CMA has also extended the deadline for its final report by 8 weeks to 18th January 2016, which will give it enough time to consider the predicted influx of responses (the deadline for feedback is 19th November 2015).

Some media outlets may suggest that the above represents a delay to BT’s plans, although the operator has always said that they wanted the deal to be cleared by March 2016 and so barring any unexpected mishaps then this target looks likely to be achieved. Quite how consumers will feel about all this is another matter.

UPDATE 10:48am

Naturally BT has welcomed the news.

Gavin Patterson, BT’s Chief Executive, said:

“We’re pleased that the CMA has provisionally approved BT’s acquisition of EE. The combined BT and EE will be good for the UK, providing investment and ensuring consumers and businesses can benefit from further innovation in a highly competitive market.”