The Competition and Markets Authority has approved BT’s £12.5bn takeover of Britain’s biggest mobile phone operator, EE
What has happened?
The mergers watchdog, the Competition and Markets Authority (CMA), has given the provisional green light for BT to take over EE, Britain’s biggest mobile operator.
It comes after months of deliberations, during which rivals such as TalkTalk and Vodafone complained about the potential power of the combination.
The CMA effectively threw out all the objections, however, ruling that the deal will probably not cause significant harm to competition or to consumers.
What were the concerns?
The concerns were focused on three areas. First, bt already dominates the market for connecting up mobile masts, via its Openreach division. By owning EE, rivals feared BT would be able to use the clout of its mobile arm to make Openreach even more powerful.
Second, both bt and EE own the rights to chunks of the airwaves used for mobile networks. This spectrum is a finite and valuable resource, and owning more of it is seen as a strong advantage as demand for mobile data increases by as much as 70pc per year.
Thirdly there were fears BT might not be as enthusiastic about wholesaling network capacity to retail rivals as EE has been. Virgin Mobile is based on EE’s network, for instance.
Why did the watchdog give the green light?
Crucially, the takeover does not reduce the number of independent mobile operators in the UK.
BT already has a mobile offer, but it is based on reselling access to the EE network. Once the takeover is complete there will still be four main networks: BT-EE, O2, Three and Vodafone. Three and O2 are attempting to merge in a deal that would reduce the number of network operators, but that is under separate scrutiny by the European Commission.
The CMA looked at the impact of BT’s takeover of EE in 10 areas and found it was not likely to harm competition or consumers in any of them. It effectively said BT would not be incentivised to abuse its power, although the panel was split over concerns on wholesale capacity, but not enough members backed an intervention.
In its findings the watchdog added: “We have also been mindful that the role of the CMA in merger cases is to protect competition for the benefit of consumers, not the commercial interests of competitors.”
Why does BT want EE anyway?
Fundamentally, the takeover is a £12.5bn recognition of the growing importance of mobile connectivity.
Operators across Europe have moved towards offering consumers a ‘quad play’ of services – broadband, mobile, phone and pay TV – and EE completes the set for BT after its heavy investment in TV sport. Yet quad play is not BT’s main strategic rationale for buying EE.
Instead, it has emphasised the ‘convergence’ of fixed-line and mobile broadband, and envisages increasingly blurred lines between the two. So within a few years, customers could subscribe to a single data connectivity package that covers them inside and outside the home through a combination of wired broadband, Wi-Fi and 4G.
The deal will also give BT a major presence on the high street to push its vision of the future via EE’s hundreds of stores.
Financially, EE also gives BT, which reported sales of £18bn and pre-tax profits of £2.6bn last year, even more heft. EE’s turnover under previous owners Orange and Deutsche Telekom was £6.3bn, and it reported a loss of £217m as it invested heavily in its network. The new owners plan to strip out technology and personnel costs to boost returns.
What happens next?
The CMA plans to publish a final report in January. In the meantime BT’s rivals can push for a rethink.