BT’s EE bid raises regulatory concerns

BT’s £12.5 billion (€15.8bn) offer for the possible acquisition of UK mobile business, EE from Deutsche Telekom and Orange has raised a number of regulatory issues, which according to Matt Howett and James Robinson, analysts at consultancy firm Ovum, are not insurmountable given current market dynamics.

They note that the competition issues raised by BT’s acquisition attempt of EE will be handled by European competition authorities, rather than by Ofcom, the national telecoms regulator. “On the face of it, things look promising and the green light is likely to be given, albeit with some concessions,” they suggest.

“Recent remedies imposed in Germany and Ireland came about because the number of mobile operators was being reduced, however this transaction preserves a four-player market in the UK. That said, BT was particularly successful in the 2013 4G spectrum auction acquiring spectrum at 2.6GHz and regulators are likely to focus on the combined entity’s overall spectrum portfolio,” they advise.

They suggest that competition issues would be more relevant if Hutchinson Three turned its attention to acquiring O2, as some reports have indicated it was considering. “This would see a change in the number of operators, something Ofcom has fought tirelessly to preserve. If the BT/EE tie-up goes ahead, the other MNOs in the UK are likely to ask for a guarantee that wholesale products BT currently provides for mobile backhaul will continue to be offered on a non-discriminatory basis – something which has recently become an active debate in the UK,” they predict.

They say that from a commercial perspective, the firms are largely complimentary, as the UK market moves towards quad-play. “This will help from a competition perspective too as Vodafone bought ONO in Spain and Kabel Deutschland in Germany without competition hurdles. The move would reduce a quad-play rival in the UK, but EE’s TV service has only been launched recently, so competition would not be damaged in practical terms,” they argue.

“Spectrum could be a concession as the merged firm’s 2.6GHz holding would be large, but O2 and 3 could be interested in this as they currently don’t have anything in that band. The deal also shows that BT is prepared to spend to get itself into a good position for the future. However, it may restrict its ability to bid for games in the football rights auction, which has just begun,” they note.

“O2 is likely to be the biggest loser should the move be successful. Telefónica has made it clear that it was interested in exiting the UK and it could now struggle commercially against its convergent rivals BT, Virgin and Vodafone. From the wireline perspective Sky and TalkTalk may also be marginalised if quad-play proves successful, although they have not made such public proclamations as O2 to exit the market,” they conclude.

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