BT has confirmed that it will pay £12.5bn to buy EE, giving it 24.5 million mobile customers, the UK's largest 4G network and the chance to become the first quad-play telecoms provider in the country.
However, despite the benefits on offer to BT, there is some way to go before the deal is approved, as Three's move for O2 is a potential spanner in the works.
BT's bid to acquire EE offers several advantages for the telecoms firm, and BT CEO Gavin Patterson has painted it in glowing terms.
“The UK’s leading 4G network will now dovetail with the UK’s biggest fibre network," he said.
"Consumers and businesses will benefit from new products and services as well as from increased investment and innovation."
The most talked about boost for BT is quad-play. This means that customers will be encouraged to take TV, phone, broadband and mobile services from a single provider.
However, the desire among consumers for the triple-play services already offered by BT and EE is uncertain, and BT's optimism is something of a “gamble”, according to Ovum telecoms analyst Matthew Howett.
“If you look at the numbers, only 23 percent of consumer households are taking triple-play, so it could be you have even fewer interested in quad-play,” he told V3.
However, Rupert Wood from Analysys Mason said that there is proof from Europe that offering all four services could reduce customer churn.
"There is strong evidence from other European markets that quad-plays have this effect," he said.
Gartner research director Charlotte Patrick added that, aside from quad-play, there are other long-term benefits to BT in acquiring EE.
“If you consider BT against its European peers it’s one of the smaller telcos and if you’re not big enough you can end up being eaten. But it’s hard to do a lot of R&D and investment if you don’t have big enough revenues,” she told V3.
“So, with the EE acquisition BT will have bigger revenues and bigger economies of scale so it will have more money for research and other investments.”
Regulatory hurdles to clear
However, just because BT has the cash to buy, and EE the desire to sell, does not mean it’s a done deal. The Competition Market Authority (CMA) will have to assess the transaction to ensure that it does not unbalance the telecoms market.
Howett explained that there are two areas where changes might be required to appease the authorities: spectrum and mobile backhaul.
“If you add BT and EE’s 2.6GHz together you end up with quite a lot and it could be quite inefficient for them to have that much,” he said.
“With mobile backhaul, the concern could be that at the moment BT Wholesale sells this to operators but now it would be using it itself. So it may be the case that this has to move to Openreach so it’s sold on a non-discriminatory basis."
However, since BT first announced its intention to buy EE another mobile deal has been put on the table. Three has outlined its intention to buy O2 for £10bn.
Howett noted that Three and O2 have lots of 800MHz and 900MHz spectrum, and the CMA could call for a reallocation of spectrum among operators, with 2.6GHz and 800MHz and 900MHz being moved among the operators.
The move by Three for O2 adds a bigger complication, though. While the BT/EE deal does not reduce the number of operators in the UK market, the Three deal will cut it from four to three.
This could make the UK authorities more wary as they have strived for years to maintain a four-player market.
The CMA confirmed to V3 that when it considers any market deals it takes into account the surrounding environment, which means that the Three/O2 deal could cause problems for BT.
Three and O2 may therefore look to have the merger approved in Brussels through the European Commission, rather than the CMA, as the EU has already approved other mergers than have created three-player mobile markets.
There is still one more complication in the form of Vodafone, which has made plain its intention to move into fixed broadband to compete with BT in all markets.
If Vodafone buys an existing internet provider to gain a foothold in this market, such as Virgin Media, the entire UK telecoms landscape will be in a state of upheaval and regulators will face a long and complex list of questions and 'what if?' scenarios.
BT said it hopes to have the acquisition of EE tied up by the end of its 2015/16 financial year. However, given the regulatory complexities being created there is no guarantee that it will achieve this.
EE brand to bite the dust
If and when the deal does pass, it seems likely that the EE brand that has grown up over the past few years at the expense of the Orange and T-Mobile brands will be phased out.
Wood from Analysys Mason said he expects to see "some rebranding", while Patrick from Gartner said that one of the probable reasons BT chose EE over O2 is because it will be easier to get rid of the EE brand.
She added that it was interesting that BT will have a high-street presence for the first time.
“This is something it’s not had before but it may give it the chance to sell other stuff such as home security,” she said.
However, it is a while yet before EE customers find themselves in a BT branded shop or see their smartphone displaying 'BT' in the top left hand corner.
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