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BT/EE deal provisionally cleared

The UK’s Competition and Markets Authority (CMA) has provisionally cleared dominant telco BT’s anticipated £12.5 billion (€15.8bn) acquisition of mobile operator EE.

The CMA inquiry group had been looking at how the tie-up would affect competition in a number of different areas of the telecoms sector. As well as looking at how the merger might affect competition for services to consumers which both companies currently provide, the group has considered whether it might alter the merged company’s incentives to continue to supply services to other communications providers on a wholesale basis.

After looking in detail at different markets – including the supply of retail mobile, wholesale mobile, mobile backhaul, wholesale broadband and retail fixed broadband services – the group has provisionally decided that the merger is not expected to result in a substantial lessening of competition (SLC) in any market in the UK.

John Wotton, Inquiry Chair said: “We recognise that this is a merger which is important to many consumers and businesses. We have heard a number of concerns from competitors. After a detailed investigation, our provisional view is that these concerns will not translate into a competition problem in practice.

We provisionally think that the retail mobile market in the UK, with four main mobile providers and a substantial number of smaller operators, is competitive. As BT is a smaller operator in mobile, it is unlikely that the merger will have a significant effect on competition. 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.

We have also been looking at the ways in which, as a merged company, BT/EE might try to disadvantage competitors which it supplied with services such as backhaul, wholesale mobile or wholesale broadband services. We have provisionally found that in some areas it is unlikely that they would have both the ability and incentive to do so – and in others that the effects of their attempting to do so would be limited.

Having considered all the evidence, the group does not provisionally believe that, in a dynamic and evolving sector, it is more likely than not that BT/EE will be able to use its position to damage competition or the interests of consumers.”

The inquiry group considered 10 areas of concern (or theories of harm) outlined in an issues statement published in July. The group is unanimous in provisionally finding no SLC in relation to all but one of the markets reviewed. In relation to the wholesale mobile market, the group is evenly divided over whether the concerns it investigated gave rise to an SLC. However, a finding of SLC requires a two-thirds majority of the group, and therefore no SLC has also been found in relation to that market.

The CMA only considered BT’s network subsidiary Openreach to the extent it is relevant to issues arising from the merger. “We are aware of concerns voiced recently about Openreach and wider concerns are currently being considered by Ofcom in their review of the whole telecommunications market,” it noted.

The full provisional findings report will be published later this week on the case page along with all other published information relating to the inquiry.

The CMA has also extended the deadline for its final report by 8 weeks to 18 January 2016 to allow it to consider all responses to the provisional findings in detail before finalising and publishing its decision.

Anyone wishing to respond to the provisional findings should do so in writing, by no later than 5pm on 19 November 2015.

Kester Mann, Principal Analyst, Operators at CCS Insight, described the provisional approval as “a great boost to BT’s multiplay ambitions in a market rapidly evolving towards bundled telecoms services.

“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.

The green light was given after an assessment that the deal would not have significant impact on competition. This is likely to have been driven by an already highly competitive UK mobile market that includes four national networks and numerous virtual providers. Further, BT’s presence in mobile, and EE’s presence in broadband, is limited.

Despite today’s news, the proposed deal between 3 and O2 remains far from guaranteed. This is because unlike BT buying EE, it will reduce the number of mobile network operators from four to three. A similar move in Denmark recently collapsed over competition concerns, while recent sentiment from European regulators has moved against in-market consolidation.

Assuming the deal receives final approval, it would allow BT to launch a potent strategy to cross-sell broadband and TV services to “new” mobile customers. Another benefit is immediate access to an extensive retail network that would enable it to articulate the merits of a multiplay service.”

Noting the CMA’s provisional cleatrance of the deal, Matthew Howett, Practice Leader, Regulation, Ovum, the more challenging transaction to win regulatory approval would be that of Three/O2. “Across Europe the sentiment for greater industry consolidation has waned following suspected price increases in markets where the number of mobile players fell from four to three, and where as a result of the changing of the guard at the EU competition authority, a higher bar has been set to win the necessary approval.

Rivals to both BT and EE have been calling for the structural separation of the incumbent to remove any possible incentive for BT to prioritise its own retail divisions, particularly in relation to the supply of mobile backhaul products. The CMA has considered this as part of its review, however sees no substantial lessening of competition.

Separately however, Ofcom is still considering the future structure of BT as part of its digital communications review. While Ofcom continues to stress that all options are being considered, it’s felt that a full structural separation is likely to be disproportionate to fix any shortcomings of the current arrangement. We will know more in January 2016 when Ofcom is set to publish its initial conclusions.”

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