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What Comes Next – BT and EE Merger Officially Cleared by Regulator

Friday, January 15th, 2016 (7:11 am) - Score 2,172

As expected the Competition and Markets Authority has today officially approved the £12.5bn merger between national UK fixed line telecoms giant BT and mobile operator EE. But what comes next and how might existing customers or services be impacted.

Most industry observers have long expected the deal to go through without much trouble, not least since BT and EE have tended to focus on two different sides of the market (fixed line and mobile). Most of this was confirmed after Ofcom effectively gave the deal a green light in August 2015 (here), which was followed by the CMA’s provisional approval in October 2015 (here).

Today’s news means that 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% with a seat on the board. The old Orange UK and T-Mobile brands may now finally be sent to the graveyard of telecoms past (here) as BT will see little reason to retain them.

John Wotton, CMA Inquiry Chair, said:

Since our provisional findings, we have taken extra time to consider responses in detail but the evidence does not show that this merger is likely to cause significant harm to competition or the interests of consumers.

The retail mobile services market in the UK is competitive, with 4 main mobile providers and a substantial number of smaller operators. 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.

We have also found that in supplying services such as backhaul, wholesale mobile or wholesale broadband services a combined BT/EE would not have both the ability and the incentive to disadvantage competitors such that there would be significant harm to competition.

We have heard wider concerns about the sector, including about Openreach and its regulation by Ofcom. Our job has been to examine the specific impact of this merger on competition and consumers and, where relevant, we’ve looked at how these issues might be affected by the merger. There is also an ongoing Ofcom review into the sector and its future regulation, where such concerns may have more relevance.”

Naturally our thoughts now turn to what the future holds and how closely, or not, BT intends to integrate the two sides of their new business. The first impact is almost always felt in terms of management and staff, with EE having already confirmed the loss of their CEO (here). The merged company will also seek to reduce duplication of roles for further efficiency savings.

BT expects to achieve combined operating cost and capex synergies of around £360m per annum in the fourth full year post Completion, which they say is equivalent to a net present value of around £3.5bn before integration costs or around £3.0bn after integration costs. However any savings could easily be reduced by other possible changes in the market (example).

BT’s ability to leverage their existing fixed line infrastructure in order to support more cost-effective mobile (3G and 4G) service delivery via the EE network is another obvious benefit of the deal, although the impact from this may yet be affected by the uncertain outcome of Ofcom’s on-going Strategic Review (here) and their earlier Dark Fibre proposal (here).

BT’s rivals, particularly Vodafone, Sky Broadband and TalkTalk, fear that the combined group would have too much power to undercut their own services, not least by combining the strengths of their extensive national fixed line network with EE’s mobile platform to cut prices, impact backhaul supply and or limit the market’s MVNO options. But this is mostly an area for Ofcom to monitor and regulate.

Dido Harding, CEO of TalkTalk, said:

It’s a disappointing decision which will increase costs for all mobile customers. This entity will create a company that is more powerful than BT before its privatisation – it will have a huge market pressure and squeeze out smaller mobile companies.”

Another big question mark hangs over the future of EE’s existing network sharing deal with Three UK, although the reduced likelihood of Three UK securing a similar £10.25bn merger deal with O2 (here) suggests that the current agreement will probably be retained.

The Consumer Angle

On the consumer front we’d expect that you won’t see any big changes immediately, it normally takes several months (sometimes years) before such big deals have progressed to the point where they’re even able to answer some of the more difficult end-user service questions. Mind you there are a few easy predictions that can be made.

BT will no doubt build some new quad-play bundles and or mobile related features that can leverage the strengths of the new business, which will include selling those services to the EE customer base.

Obviously this creates a conflict with the existing BT TV (YouView) service as EE has its own independent TV product (here) and so it’s likely that EE’s product may be sacrificed. This is less of a problem for EE’s Home Broadband product as that already uses a BT platform, although going forwards they may seek to re-align the packages more closely with their own.

Likewise the EE brand itself may eventually fade away because there will be a desire for a singular identity and to avoid the situation of having two operators with different names selling basically the same service, although this usually takes years to occur and for now BT has said that they intend to retain the EE brand. Similarly BT has managed to retain PlusNet as a semi-separate brand for quite a few years.

BT will also gain a significant high-street presence via EE’s stores, which is something that TalkTalk, Sky Broadband and Virgin Media would struggle to match. We’d be very surprised if BT didn’t attempt to leverage that for some additional promotion, although fixed line services can create plenty of complex problems (e.g. ADSL reliability) that such stores would struggle to tackle.

Gavin Patterson, BT’s Chief Executive, said:

“It is great news that the CMA has approved our acquisition of EE. We are pleased they have found there to be no significant lessening of competition following an in-depth investigation lasting more than ten months.

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. 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.”

The elephant in the room here is that both BT and EE have a mixed history when it comes to customer support quality (example). Sadly neither operator has got this aspect quite right and so some customers will perhaps rightly fear the ‘worst of both worlds‘ outcome, with support getting worse instead of better. BT Chairman, Sir Mike Rake, recently recognised this and has pledged improvements (example).

But what of the more distant future? Some analysts have previously hinted that the new company structure could eventually leave BT exposed to being gobbled by Deutsche Telekom, but that is very early speculation and realistically nothing is likely to happen for several more years, if at all. BT has however hinted that there is scope for some new Joint Ventures (JV) with the company, most likely focused on the TV side of things. In keeping with that Sir Mike Rake hasn’t ruled out the possibility of bidding for Channel 4, if it were to be privatised in the future.

BT will now commence the formal process of completing the deal. A prospectus is set to be issued in the week commencing January 25th with the deal set to close on January 29th, when Deutsche Telekom and Orange will receive their shares in BT. The operator is then expected to provide more detail on any future plans when they publish their next quarterly results on 1st Feb 2016.

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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.
Leave a Comment
16 Responses
  1. jon says:

    BT group will beretaining the ee brand for some time it’s well established, confirmed by ceo

    1. jon says:

      I Misread the article haha 🙂

  2. GNewton says:

    What comes next? The answer is clear, we’ll terminate our contract with EE before BT messes things up.

    1. FibreFred says:

      🙂

      That is why I can never take your comments seriously, any normal person would see what happens if they are happy with their current provider.

      But you are a hater so… it makes sense 🙂

    2. GNewton says:

      This has nothing to do with hate or love for BT. But the situation is clear to anyone who cares to take a look at any review site, including ISPReview, Trustpilot, BT business forum, and others. There is a reason why Ofcom’s Strategic Review of Digital Communications will examine competition, investment, innovation and the availability of products in the broadband, mobile and landline markets. Hopefully it will lead to an independent Openreach, separate from BT, or at least a stricter and more efficient regulation.

    3. TheFacts says:

      Why will separating it from BT change things?

    4. FibreFred says:

      It is everything to do with hating BT.

      You are saying you are leaving EE because they have merged with BT, there’s no evidence anything will change with EE over the coming years at all, but you are leaving because you don’t like BT and think something will happen.

      There’s nothing to say at all EE service will be worst post merger

    5. GNewton says:

      @ThaFacts@ I answered your question several times in the past. How would you sort out the BT / Openreach mess if not by separation? What would you say to all those customers (see e.g. Trustpilot reviews) to solve the issues caused by Openreach?

    6. FibreFred says:

      1) Why are these issues caused by openreach , please cite proof
      2) If above is true why are openreach failing bt and trustpilot scores but arnt when serving other providers

      Any substance or just more trolling?

  3. Andrew says:

    EE will continue the same for quite a while. BT would be silly to mess with it now it’s managed to get a half decent name for itself.
    Current investment is for up to the end of 2017 so we will see the current rapid 4G rollout continue until it’s finished (100% 4G1800 base network with continuing 2600 deployment and the rolling out of VoLTE and 800 low band spectrum).
    After that I think it comes down to what Marc Allera is allowed to do or spend.
    His ideas at Three were the same as Olaf’s at EE, which is why Three now have UK wide 3G and VO2 don’t!
    We shall see!
    If they bring another 10Mhz of 1800 over to 4G though they would have a total of 105Mhz of 4G spectrum!! :-O
    That’s enough for about 700Mbps per cell (sector).
    I think we may see an increasing of data allowances before long.

  4. liveinhope says:

    An independent Retail/Consumer, separate from BT more like!
    Remove the part that brings down the group and add to Plusnet then sell it off as a new ISP.

    Keep the technical parts of BT together.

  5. dragoneast says:

    Hopefully some of the benefits of economies of scale will come customers’ way, whether by costs increasing by less and/or increased allowances and better services through maintained or increased investment. The trouble I have with a BT/OR demerger is the opposite: the costs of any improved level of service and investment, indeed all the costs (whatever they turn out to be, and whoever has control over that it isn’t the customers) of the new “independent” OR have to be borne ultimately by us end users. Investors, advisers and suppliers (even workers) don’t give of their time and money out of the goodness of their hearts. We can tell them what we like (a painful lesson HMG is having with the NHS). Fine if you have a crop of money trees or a sugar-daddy to hand, not so good for those of us trying to live within our means. We think the accountants who rule the roost will just disappear into thin air? Think again.

    Somehow we always seem to think there’s a pot of gold hiding at the end of the rainbow, just waiting for us to get our mits on it. Off with the fairies.

    1. GNewton says:

      @dragoneast : So what happens to the Openreach revenues while it’s owned by BT?

      If Openreach were independent, you wouldn’t necessarily expect lower prices (they are probably too low anyway). However, regulating a telecom-focused Openreach would be more streamlined and efficient. Also, Openreach would have to quit it’s lazy “Can’t Do” culture and would have to act more like a business in order to keep it’s large customers, like BT or others. And other investors could engage in an independent Openreach.

  6. Ignition says:

    Oh look, a news article with little relevance hijacked to have a go at Openreach.

    This is both new and exciting stuff, right down to the repetition for the 300th time of the points made.

    1. FibreFred says:

      Ooo careful don’t want to be accused of personal attacks on people who have different views now 😉

  7. fastman says:

    And other investors could engage in an independent Openreach. — Really ? and why do you think any one would do that !!!! — investors want a return and most of them sort of sharpish

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