It wasn’t quite a forgone conclusion but BT were given regulatory approval to complete the £12.5 billion acquisition of EE to further consolidate the telecoms market in the UK today. There was a provisional decision to clear the merger back in October 2015 so this did not come as a surprise.
The deal is now expected to close on January 29th when Deutsche Telekom and Orange will receive their shares in BT to complete the sale. Deutsche Telekom will have 12% and a seat on the board at BT and Orange, who chose to take a greater proportion in cash will have 4%. It will be interesting to see whether BT and Deutsche Telekom move closer together over the coming months/years as a result of this deal.
BT Chief Executive Gavin Patterson commenting in the press release issued by BT this morning 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”.
Pressure on BT
There were concerns raised by its UK competitors about the acquisition and these specifically revolved around competition in the supply of retail mobile, wholesale mobile, mobile backhaul, wholesale broadband and retail broadband services. John Wotton, Inquiry Chair, commenting on the issues raised 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.”
The inquiry specifically excluded the wide complaints around BT Openreach and that in owning the copper network there is a serious risk to open competition in the market. However Wotton did mention this in his summing up and BT will still need to be concerned by the outcome of a separate Ofcom inquiry. That they now control an even larger slice of the UK telecoms market could increase the strength of the arguments against them. Certainly its competitors and Ofcom are likely to consider whether this latest deal is having an impact upon the competitiveness of the market.
Wotton’s carefully worded comments shows that despite the issues raised by competitors the inquiry chose to exclude the Openreach question from the inquiry. He commented: “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.”
With O2 being sold to Three in the pipeline, this will reduce the number of players yet again in the UK market. Having given this merger the green light it is unlikely that this second merger will be halted. What it will mean is a significant reduction in choices for customers and it will be interesting to see how the regulators move to ensure that the Virtual Mobile Network Operator market is not impacted badly.
The benefits though are that a roll out of 5G is more likely as increased revenues will support such a roll out once it becomes fully available for the UK. It will now be interesting to see how BT merge the two businesses. EE has a recent experience of merging two companies, with T-Mobile and Orange being combined only a few years ago into the single entity. This also led to significant savings as the headcount was reduced and consolidation of both data centres and infrastructure costs improved the bottom line of the combined company
The question is can BT get a significant saving from another round of this or have most of the savings already been made. The EE rationalisation was done with limited disruption to business relationships and many will watch to see how BT approach it.
Consumers and Businesses will also be wondering whether by combining mobile and fixed telephony they will be getting better deals from BT in the future. Consumers may also feel the same and it will certainly be worth keeping an eye out for the new customer deals as BT/EE seek to retain market share during the potentially disruptive merger process.