BT misses the mobile market. The company, which sold its former mobile unit Cellnet in 2001, has confirmed that it is in discussions with O2, and quite likely EE, about a possible acquisition and return to the industry.
Such a deal would cost BT several billion, and bring with it the stresses and strains of running a mobile network and countless more meetings with Ofcom.
Still, as the UK’s largest broadband network owner, BT knows a thing or two about telecoms. But the question remains: why does BT want a slice of the mobile market?
One provider to rule them all
Imran Choudhary, senior analyst at Kantar Worldpanel, said that the talks appear to be a clear move to position BT at the centre of people’s digital lives.
“BT has invested close to £1bn into its TV packages, particularly on acquiring football rights, and holds the largest share of consumer broadband in the UK. But it has struggled to move into mobile in the past,” he added.
“Acquiring one of the largest networks in the country would give it instant access to an established customer base, allowing it to tap into and cross-sell its internet, TV and landline packages."
O2 therefore seems a logical acquisition, according to Choudhary. "O2 would be a good fit as nearly a third of its customers already source their home broadband from BT,” he said.
This idea was also posited by Stephen Hartley, practice leader for service provider and markets at analyst house Ovum.
“We want broadband and we want it anywhere, any time. From a service provider perspective it’s about trying to deliver connectivity as seamlessly as possible. You want the same offering across fixed and mobile devices,” he told V3.
“It also enables firms to offer bundled services, so customers become more loyal because they have all their services from you. This helps reduce churn and keeps more people on your networks.”
However, James Barford, head of telecoms research at Enders Analysis, is not convinced that cross-selling services would prove easy, or necessarily that fruitful, for BT.
“The idea that consumers are responsive to cross-selling between fixed and mobile networks is something I am quite sceptical of. Any examples of this type of success on the continent have been due to discounted deals,” he told V3.
“BT doesn’t have a very stretchy brand. It has tried to sell mobile before and withdrawn those products, so it could be hard to try cross-selling again.”
However, while the O2 brand is very well established and any attempt to alter it could backfire, there is another option on the table in the shape of EE.
The inclusion of EE in the mix is intriguing, as the CEO of Orange France, which is one of the co-owners of EE alongside Deutsche Telekom, has again confirmed that the 50/50 management split is not a long-term plan.
There has long been talk of an IPO for EE, but disagreements between the boards of the two companies have stopped this happening. Indeed, it's impressive that a UK operator run by German and French boards has managed to agree on anything.
A sale to BT by EE may be a better option for the two operators, giving them a chance to rid themselves of the company. For BT there could also be compelling reasons to consider EE over O2.
“The EE brand is quite strong but it is only recently developed, so there might be less risk of changing that, unlike O2,” said Barford, who also noted that EE's network may better complement BT's.
“In some ways EE could be a much better fit because it has the biggest mobile network and BT has the biggest fixed network, so there is a nice tie-up there.”
Then again, Telefónica has made no secret of its desire to rid itself of O2, which it does not see as a key strategic asset. It will no doubt do all it can to entice BT into a deal, perhaps tugging on the heartstrings with talk of returning to its parent company.
However, as Rupert Wood from Analysys Mason notes, Hutchison 3G, the owner of Three in the UK, could also be a "dark horse" bidder for O2, given that it has already made a similar move for O2 Ireland and Orange Austria.
There are plenty of decisions ahead for BT and all the mobile operators, and the boardroom chairs will no doubt be well used in the coming weeks.
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