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CMA Give BT Green Light on EE Acquisition

The Competition and Markets Authority’s (CMA) has given its approval of BT’s acquisition of EE, unconditionally without remedies.

The CMA’s decision paves the way for BT to complete the acquisition of EE in the coming weeks and to incorporate the business into the wider BT Group in the months to come.

There will be a distinct EE line of business following completion of the acquisition. This will be led by Marc Allera who will become EE CEO following completion of the deal.

BT Chief Executive Gavin Patterson 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”.

Following today’s approval BT will commence the formal process of completing the deal. A prospectus will be issued in the week commencing January 25 with the deal set to close on January 29 when Deutsche Telekom and Orange will receive shares in BT. BT will report its Q3 2015/16 results on February 1.

Following completion of the deal Deutsche Telekom will have twelve per cent of BT shares and Orange will have four per cent. A representative of Deutsche Telekom will be appointed to the BT Board in due course.

Kester Mann, Principal Analyst, Operators at CCS Insight commented, “It is inevitable that BT will move to replace the EE name, however it would be unwise to rush into this too soon. The EE brand has benefitted from strong investment to become synonymous with widespread 4G coverage. A greater priority for BT is the behind-the-scenes integration of the UK’s largest fixed-line and mobile operators. Only then should it look to articulate changes to consumers.

A challenge for BT’s mobile ambitions in the consumer market is its legacy association with fixed-line services. This could be particularly relevant for the youth market, unaware of BT’s previous mobile ventures. However, strong recent promotion of the fledgling BT Mobile offering is helping to address this.

A sensible approach could be to first offer BT products and services in selected EE stores and/or to use the EE brand name alongside BT Mobile’s marketing collateral. This would enable customers to begin to make an association between the two companies.

The deal paves the way for significant high-street rebranding. BT’s lack of retail presence is its Achilles heel, but converting EE shops will enable it to present and communicate bundles of mobile, broadband and TV face-to-face. This could give it a major boost as the UK market inexorably evolves towards multiplay.

On the enterprise side, BT might be better advised to rebrand more quickly given its already established strong presence in this sector. Indeed, the company might well end up taking a phased approach, that retains the EE name for longer in certain segments before withdrawing completely in the long-term.

EE’s brand is still likely to outlast O2’s in the UK. If it receives regulatory approval, Three parent CK Hutchison will look to quickly rebrand the network. This will be a challenging task, considering that O2 possesses the stronger brand name. And it will need to tread particularly carefully when considering the future of O2-branded initiatives like Priority, which has played a crucial role in customer loyalty at the network.”

ITSPA has expressed major concern around the future health of the UK mobile market, following the Competition and Markets Authority’s (CMA) publication of its final report approving the merger between BT and Everything Everywhere today. Eli Katz, the Chair of ITSPA stated “The competitiveness of the UK mobile sector is a genuine concern for our industry, and threatens to harm consumers and inhibit UK growth. ITSPA already had serious competition concerns around the market and we had hoped the CMA would have considered potential wholesale mobile remedies in its final report, when approving the proposed BT/EE merger. Particularly, given the panel had expressed differing opinions in its provisional report around the merger’s effect on the wholesale mobile access market.”

ITSPA members believe that despite claims by the mobile operators, there is a highly restrictive wholesale market which hampers the ability for new entrants to compete in the market. They highlight current market trends that suggest access for mobile virtual network operators (“MVNOs”) to mobile operators’ networks is reducing and therefore restricting their ability to compete. The CMA panel was split in its provisional findings report as to whether the BT/EE transaction would lead to a significant lessening of competition in the market for wholesale mobile access. The final report, which looked into four ways the merger could damage wholesale mobile access decided that there would not be any substantial lessening of competition.

Eli Katz added “ITSPA members take differing opinions on the BT/EE merger but it must be taken into context with the wider market consolidation currently taking place, particularly the proposed tie-up with O2 and Three. This would be extremely damaging because, as Sharon White pointed out last year, there is already substantial evidence in other European markets to suggest that prices rise when the number of mobile operators in a national network decreases from four to three operators. The wholesale mobile access market in the UK must be reviewed and effective remedies agreed, before any merger between O2 and Three can be considered and we would urge the EU Commission to consider these recommendations in its current inquiry. A fully functional wholesale mobile access market would encourage innovation, competition and result in improved outcomes for UK consumers. Indeed, the UK’s mobile market could become as competitive and innovative as it is currently for fixed telephony.”

ITSPA has voiced concerns around the mobile market during its discussions on the two industry mergers to both the CMA and the European Commission who have been reviewing these respective cases and will continue to engage with all parties to ensure the UK mobile space remains open to vibrant, new entrants who can offer alternative services.

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David Dungay

Editor - Comms Business Magazine