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BT Tells Regulator its £12.5bn Move to Buy EE Will “Enhance” Competition

Monday, May 18th, 2015 (2:07 pm) - Score 926

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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By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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10 Responses
  1. gerarda says:

    Well they would say that wouldn’t they.

    1. Astroturfer says:

      Well yes. They’re hardly going to tell the competition authorities that their attempting to purchase EE will devastate the telecomms marketplace.

      I think it’ll be largely neutral with the only issue perhaps mobile backhaul.

      Dark fibre access in return for them being allowed to do this and merge Openreach and Wholesale seems reasonable.

  2. PeterM says:

    One massive benefit of the merger could be the use of the EE 4G network to bring superfast broadband to the parts of rural Britain beyond the reach of fixed line broadband.
    I think that OFCOM should compel BT to extend the EE network to give much better 4G coverage in rural areas and to offer special data sim packages to rural customers that are affordable and have generous data limits.

  3. Shady_Creek says:

    What amuses me is that for all those years that BT was licking its wounds and getting over the debt mountain it created for itself, these other providers all had a chance to dominate the UK communications market and failed. Now they’ve all got a sore head about it.

    For years both Vodafone and O2 had far superior cel networks but didn’t invest nearly enough to keep pace with the evolution of the smart phone, plus several failed (or later sold off) attempts at home broadband and other forays. Meanwhile Sky were more than happy to stitch up every content provider known to man to make sure they were the only credible pay-tv game in town.

    Then there was that real head-scratcher. T-Mobile and Orange merging. T-Mobile with their disproportionate dependency on PAYG glove-box phone customers and Orange with a half decent proposition, but struggling on coverage. These two got together, invested heavily and paved the UKs way into a 4G experience.

    BT went shopping for a cel provider, chose EE over O2 (quite understandably in my opinion) and now the other players are griping about BT having too much power. Wow. Just wow.

    There’s a reason for BTs leading market broadband share, and it’s not because they’re the cheapest in town. It’s because they finally turned a corner and understood the customer proposition. Something I don’t think some of these others have quite got their head around yet.

    1. Astroturfer says:

      BT have one of the lowest market shares for an incumbent in Europe. You underestimate the advantages of being ‘the phone company’ I think.

  4. MikeW says:

    I guess BT are pitching their response with “four mobile operators” because this deal doesn’t affect the total. If Ofcom have an issue with their becoming 3 operators, surely the place to complain is in Three’s pitch for O2.

    As carrier aggregation becomes a more available, and better supported, proposition, peak mobile speeds are going to depend on operators having lots of chunks of spectrum. Too many operators => too little spectrum each.

  5. NGA for all says:

    Given BT’s Commons Cost allocations and recovery just about shape everything including investment, or more particarly lack of investment it would interesting to see whether this burden could be re-configured in any way by the merger, or whether EE/BT together has bigger common costs? Or whether the economy is better served by a separate Openreach/Wholesale, focusing on worldclass data transport?

    I cannot see the network getting the attention it needs in a bigger group. A share split with TT and BSkyB free to buy in must be an interesting option at this particular point in time. At a minimum network investment needs to be ring fenced in some way.

    1. Kyle says:

      The mobile deals for existing BT customers are a rip off anyway, you do not even have to look at all the mobile providers to find an instant better deal if you want to be a package customer.
      As just a quick example of what you can get for your money…

      BT’s middle plan is 2GB of data, 500 minutes and unlimited texts for £12

      Talk Talk plan is Unlimited data, Unlimited minutes and Unlimited texts for £12 OH and it is only a 30 day rolling contract unlike BTs 12 month lock in.

      No doubt if you shop around with the more well known mobile providers you can do just as good if not better.

      Anything BT mobile much like their TV at the moment is just expensive pointlessness.

    2. GNewton says:

      @Kyle: “Talk Talk plan is Unlimited data, Unlimited minutes and Unlimited texts for £12 OH and it is only a 30 day rolling contract unlike BTs 12 month lock in.”

      Can you give us a link to this offer? Worth looking into it.

    3. Kyle says:

      http://mobile.talktalk.co.uk/unlimited
      Like the mentioned BT deal in case it was not clear you will have to be a customer of Talk Talk though. Both were a compare of what each company offers its customers of other products (IE landline, broadband, TV etc).

      It does demonstrate though the BT mobile product is NOT a bargain for BT users. When others offer their customers so more and better value deals.

      Im actually thinking of going to Talk Talk for my broadband, support will be terrible with Talk Talk but it is useless with BT anyway so i may as well have useless support with Talk Talk but save a considerable chunk of cash.

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