Only a few months ago, UK landline incumbent BT was reported to be close to a broad deal with its former mobile arm, now Telefonica O2, to support its return to a full mobile service. But in fact, it has turned to the country’s largest cellco, EE, for the latest piece of its wireless jigsaw, ousting Vodafone.
It has signed an exclusive MVNO agreement with EE, which will take BT into LTE services for its customers as well as its 88,000 staff. Historically, BT has run its virtual mobile offerings on the O2 network ‘ O2, then Cellnet, was spun out of BT in 2002 ‘ though its enterprise services have been hosted by Vodafone. That agreement ended earlier this year and was widely expected to be transferred to O2.
BT is getting closer to EE, a joint venture between France Telecom and Deutsche Telekom, which currently has the UK’s biggest LTE network thanks to the headstart it was granted by regulator Ofcom, which allowed it to deploy 4G in its refarmed 1.8GHz GSM spectrum.
BT already has a deal with EE to provide Wi-Fi to the latter’s customers. Wi-Fi is the cornerstone of BT’s wireless strategy, since it has no mobile arm of its own, and it has invested heavily in a dense network of hotspots, in rural Wi-Fi access (including trials in white space spectrum), and has a partnership with ‘homespot’ provider FON to support community access to BT subscribers’ access points.
BT said in its statements that it will manage the transition from the current MVNO deals to EE to ensure a seamless move for customers, initially focusing on large corporates, the public sector and small and medium-sized enterprises. It does not aggressively pursue the consumer mobile market a its main strategy for this space revolves around Wi-Fi. However, there is now speculation that BT will return to the consumer sector via EE, since it will be under pressure to offer LTE as well as Wi-Fi options as it develops quad play bundles ‘ it is essential for telcos, as they face market saturation and price wars, to attract a greater share of customers’ overall spend.
An increased focus on mobile broadband to complement its national fiber roll-out was also signalled when BT acquired 2.6GHz spectrum in the recent Ofcom auction. This could form part of a pact with a cellco, boosting a mobile operator’s capacity as LTE uptake rises in return for virtual services. Again, that possible agreement had seemed tailor-made for O2, which came out of the auction light on 2.6GHz holdings and, in April, signed a deal with BT Wholesale for fiber backhaul for its 4G network.
BT’s previous pact with Vodafone for consumer and enterprise service and handsets was worth more than £10m ($16m) a year, sources say.
Meanwhile, the mobile network owners are engaged in a heated battle for LTE subscribers now, with three operators now live with 4G and 3UK set to follow soon. But they complain that their investments may be limited by new spectrum fees proposed by regulator Ofcom. Under the proposed rules, spectrum usage fees for Vodafone and Telefonica O2 would increase fivefold. All cellcos would face bigger bills for rights to their GSM spectrum, because this can now be refarmed for more valuable LTE services (as EE is already doing). Vodafone and O2 have GSM frequencies in 900MHz and EE in 1.8GHz (and 3UK once it receives airwaves being transferred from EE). The operators currently pay a combined total of £24.8m ($39.5m) a year for 900MHz spectrum and £39.7m for 1.8GHz, but under the new proposals these would rise to £138.5m and £170.4m respectively.
Despite this setback, the cellcos are investing heavily in their new LTE networks. EE has already doubled peak download speeds to 150Mbps by refarming a larger amount of its GSM spectrum, and this week it hinted at a further doubling, to 300Mbps. It is trialling a network offering these peak rates, it said, and would hope to go live in selected markets in 2014. This would presumably be achieved using carrier aggregation to pool 1.8GHz frequencies with the 800MHz and 2.6GHz spectrum acquired at auction earlier this year.