Telecoms giant BT has today submitted its official response to the Competition and Markets Authority‘s (CMA) review of their £12.5bn move to buy mobile operator EE. As part of this the operator has said that its acquisition would “enhance” rather than hurt competition in the UK telecoms market.
BT officially “agreed definitive terms” to buy EE in February 2015 (here) and since then they’ve also won overwhelming approval from shareholders (here), although the transaction itself remains subject to clearance by the relevant regulatory and competition authorities. At the time BT hinted that this process might not close until March 2016.
Assuming the deal does complete then Orange will hold a 4% stake in the new business (plus around £3.4bn in cash) and EE’s other parent, Deutsche Telecom, should end up holding 12% (plus a seat on the board). Check the full summary of financial details for more.
On the surface this all seems like it should be quite straight forward because BT is a predominantly fixed line operator, while EE is largely a mobile one and there’s very little overlap between them.
But rivals, such as Vodafone, Sky Broadband and TalkTalk, fear that the combined group would have massive power to undercut their own services, not least by combining the strengths of their fixed and mobile network, which might prove difficult for others to match. Ofcom also don’t like the idea of seeing the UK mobile sector reduced to three primary operators.
Naturally BT’s formal submission to the CMA will seek to paint a different picture by instead suggesting that the deal “will be good for competition, investment and innovation in the UK“. Central to this is BT’s argument that the proposed acquisition will “not reduce competition in either the fixed or mobile markets and will in fact enhance it, with the number of UK mobile network operators remaining at four” (it’s not clear how you get to four, unless Three UK’s deal to buy O2 falls through).
BT also said that the ability of their landline and mobile rivals to compete with them using its Openreach network would be unaffected by the acquisition, while their market share in both sectors will remain “under the threshold that regulators normally look for before considering whether action is required“. BT also argues that Virgin Media and TalkTalk are already quad-play providers, although neither of those two own a primary mobile network (both are MVNO).
Gavin Patterson, BT Group CEO, said:
“BT’s acquisition of EE will be good for consumers, businesses and UK plc, as well as for BT shareholders, so we are keen to get regulatory clearance. A larger BT will be able to invest and innovate even more than now, something that’s good for jobs and good for customers.
The acquisition will lead to greater competition, given our history as a natural and willing wholesaler, enabling other companies to use the networks we own. We provide wholesale access to companies in the broadband market and we are happy to support others who wish to compete in the mobile market as well.
The UK is one of the most tightly regulated marketplaces in the world and that will continue to be the case ensuring all companies can compete on a fair basis.”
In consideration of all this BT has asked the CMA to jump directly to a Phase 2 investigation, which they claim would allow the authority to “consider any complex issues in depth without delay, and offers a shorter end-to-end review period compared to the CMA’s usual processes.” The CMA is predicted to confirm its position on this in about three weeks’ time.
Meanwhile BT’s rivals have been making various demands, such as calls for some of EE’s radio spectrum to be released for use by rivals and a demand for the CMA to force BT into offering Dark Fibre access at an Ofcom regulated price. Funnily enough Ofcom has just proposed the latter (here), much to BT’s annoyance.
A few have also said that the Openreach division should be completely separated from BT, although at present that seems like a less plausible outcome. In short, we wouldn’t be surprised if the CMA took a longer path, particularly given the on-going move by Three UK’s parent to gobble O2 and Ofcom’s Dark Fibre proposals.
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