BT and EE to merge in weeks after deal gets final approval

Acquisition of mobile network operator is expected to conclude at the end of January after Competition and Markets Authority gives go-ahead

BT Group has recently ventured into the mobile business. They were given approval by the competition and markets authority to acquire mobile network operator (EE) on a deal worth 12.5 billion. The final documentation and acquisition will commence on 29th January.

EE

EE will be treated as a separate business entity within the BT Group once the incorporation has been done. It will be headed by Marc Allera after completion and he will proceed to become the CEO. It is currently headed by Olaf Swantee who will step aside as agreed.

When everything has been completed Orange and Deustche Telecom, who are the parents of mobile operator will hold 4% and 12% of BT shares. It was also agreed that Deustche telecom will also have a representative have a representative on the BT board.

Although there were concerns that had been raised by customers and direct rivals, there was no expected unfair competition in any markets where the two firms have a presence. This has taken into consideration broadband and retail market. This was a result of findings of the deal and detailed assessments carried out by the competition market authority.

During the assessment of the deal, CMA paid particular attention to the following issues. First is the effect of the acquisition on the merged company to continue supplying whole sale network services. Secondly the authority also looked into the connectivity to other service providers in the communication sector.

According to John Wotton, who was the inquiry chairman, there were very low chances of the merger having any major market effect considering that BT is a small operator in the mobile market. In light of that, since EE has not dominated the broadband retail, goes ahead to prove that the merger will not produce any unfair competition.

There were also some concerns which had been raised about the regulation of Openreach by Ofcom. As much as Wotton acknowledged, them, he clearly stated that the main mandate of CMA is to assess the impacts of the merger on consumers and competition. He went ahead to state that Openreach future is more relevant to the market review of Ofcom which is underway. The authority will announce the conclusions by the end of February.

The CEO of BT group Gavin Patterson embraced the decision of the authority in approving the acquisition which was done without any remedies and conditions. The merger of BT and EE will create a formidable digital champion for the United Kingdom. It is also expected to drive innovation and create attract high level of investments in a market with high levels of competition.

Gavin Patterson went on to say that he was sure communities, consumers and business would stand to benefit. He attributed this to the convenience that will result from combination of fiber optics broad band and excellent mobile services.

Persistent objections 

According to Dan Howdle, a telecoms expert at Cable.co.uk, a site that undertakes mobile and broadband comparison, the merger of BT and EE has made a very powerful force when it comes to consumer telecoms market in the United Kingdom. This is the reason why other players in the industry wanted the merger approval not to be done in a rush and to explore all objections, possibilities, and considerations.

As much as the deal was expected to be approved by CMA, Howdle argues that it happened at a time when Vodafone, Sky, O2, TalkTalk and Virgin Media had raised strong objections. They were concerned about the huge control on the 4G and 3G spectrum by the merging of the two firms. They also argued that the deal made BT group too powerful on moderating the wholesale of network capacity. The main effect being felt by mobile network virtual operators like virgin mobile who are customers of the former EE.

Sky argues that there are fundamental flaws with regard to the economic analysis that was done by CMA. They also insist that CMA the merger was not shared by CMA as a whole since some members felt that it would create a major problem for telecoms in the United Kingdom. The ripple effect will be felt by customers too according to Howdle.

The competitions market authority strongly believes that the company that has been newly merged is fully motivated to continue supplying wholesale services to the other provides. This will prevent the new firm from locking out third party operators. As such, they will continue to use its network infrastructure.

However, its competitors fear that there might be monopolistic tendencies in future since the CMA did not put any firm measures to prevent the vice. According to Chi Onwurah, who is a labor shadow minister, the process is still unclear. He is particularly concerned with the wholesale issue. He argues that the deal did not consider issues that might emerge in future. The deal only looked at the present situation but did not look at future prospects or what might happen in three years time when more mergers are expected.

End of EE

According to Kester Mann, who is an analyst at CCS Insight, BT would eventually replace the EE name. However, his advice was that it should not be done in a rush. EE has become a strong brand due to its robust investments to ensure widespread 4G coverage in the United Kingdom. The main task that BT should undertake first is to integrate mobile operators and the largest fixed line in the United Kingdom. After that has been done, then the firm can go ahead to institute changes to the consumers.

Kester mann was of the opinion that the main challenge facing BT is its association with fixed line services especially among the youth who do not know that they used to own O2. The solution to this challenge would be to use EE stores to offer BT services and products. The firm can also make use of the EE brand versatility on its mobile marketing to establish a better connection with its customers.

Mann also says that the merger has opened doors for a thorough rebranding. The main problem BT is currently facing is lack of presence in the telecoms retail sector. However, using EE shops will help the company sell bundles of broadband, mobile and TV at an individual level with their customers. This could propel the company forward in a big way since the market in the UK is based on multiplay.

Conclusion

On the business side of things, a better approach would be for the company to do away with the EE brand within the shortest time in order to benefit fully from the association. Overall, such a move is going to drastically improve its competitive edge.