Your browser is not supported. Please update it.

29 October 2015

BT’s mobile return comes closer as EE deal crosses key hurdle

The UK competition watchdog has given preliminary approval to telco BT’s bid to acquire the country’s largest mobile operator, EE. This makes is highly likely that the acquisition will go ahead, creating a quad play leader in one of Europe’s most competitive markets, and returning BT as a significant mobile player for the first time since it spun off its cellular arm, now Telefonica O2.

Telefonica’s own prospects of offloading that subsidiary in a sale to Hutchison Whampoa, which also owns 3UK, are less clear. National and European antitrust regulators have traditionally been wary of deals which reduce the number of mobile operators in a market. Telefonica will hope that its deal will be assessed in the context of broader telecoms, media and quad play competition, amid the consolidation of the UK providers around multiplay services.

However, while the European Commission allowed some mergers in the past year – including those in Germany, Austria and Ireland –which reduced the number of players, it has returned to a harder line recently, notably by blocking the proposed combination of Telenor’s and TeliaSonera’s Danish activities.

The final shape of the UK competitive landscape, then, will not be clear until well into 2016 – even when the O2/3UK deal is decided, further consolidation is likely to loom. A merger of Liberty Global’s Virgin Media cableco with Vodafone UK is still widely expected, even though the two parent companies recently said they could not agree on a full corporate marriage. And broadband provider TalkTalk may also be a target as all MNOs look around for wireline assets.

But a measure of clarity will be introduced once the BT/EE deal is approved, as is now widely anticipated. The UK Communications and Markets Authority (CMA) has reached a preliminary ruling that the marriage will not cause a substantial reduction of competition in either the retail or wholesale markets, fixed or mobile.

“Having considered all the evidence, the group does not provisionally believe that, in a dynamic and evolving sector, it is more likely…that BT/EE will be able to use its position to damage competition or the interests of consumers,” said CMA inquiry chair John Wotton, in a statement. It pointed to the high level of competition in the UK, and the fact that there would still be four MNOs plus a host of MVNOs.

“By the same token, it is unlikely that the merger will have a significant effect on competition in the retail broadband market, where EE is only a minor player,” Wotton added. On the wholesale side, where many of the objections to the deal have focused, the CMA said the merged company would have limited ability and incentive to disadvantage competitors. Competitors like Vodafone have raised fears that BT would give preferential treatment, particularly in fixed lines for mobile backhaul, to EE. Regulator Ofcom is conducting a separate review of the structure of BT going forward.

Kester Mann, principal analyst at CCS Insight, told TotalTelecom: “The announcement that no remedies will be applied represents a particular victory for the company. Rivals such as Sky, Vodafone and TalkTalk have repeatedly expressed concern over the dominant position of the proposed new entity, particularly around mobile spectrum and backhaul. It is sure to further fan the flames of their calls for structural separation of Openreach from BT, currently being considered as part of Ofcom’s digital review of the UK market.”