What Does BT-EE Deal Mean For UK Mobile Market?

BT has finalised its £12.5 billion takeover deal with EE’s owner’s Deutsche Telekom and Orange and, subject to regulatory clearance and shareholder approval, will add the UK’s biggest 4G service to its superfast broadband network.

The acquisition had been expected ever since BT and EE entered into “exclusive negotiations” in December, but its confirmation is the first development in a year that could shake up a UK communications market heading towards convergence.

But what exactly will the BT-EE tie-up mean for the mobile market? We asked three industry experts what they thought.

Matthew Howett, Practice Leader, Regulation, Ovum

“BT anticipates that the transaction will need to be cleared by the Competition and Markets Authority (CMA). Depending on whether or not remedies are required, that process could last between eight and 32 weeks.

“The operator does not expect clearance from the EC to be required. At this point in time, things generally look promising and the green light is likely to be given, albeit with concessions needed. One of those is likely to address the combined entity’s spectrum holding. BT was particularly successful in the 2013 4G spectrum auction, acquiring spectrum at 2.6GHz, and the inquiry is likely to assess what adding this to EE’s already sizable lot will mean.

“What potentially complicates things is the planned acquisition of O2 by Three – it is not yet clear whether issues arising from that will be considered by the CMA separately or as part of this review.

“A combined Three and O2 would have a concentration of the lower-frequency spectrum (ideal for providing coverage), but would have no higher-frequency spectrum at 2.6GHz, which is needed for capacity given consumers’ insatiable appetite for data. If both transactions are to conclude, there could be a reorganization of spectrum holdings between the two enlarged operators.

“The other concession likely to be needed concerns mobile backhaul. Other UK mobile operators are already calling for guarantees that the wholesale products BT currently provides for backhauling traffic will be offered on a nondiscriminatory basis.

“This issue could be resolved if all of the relevant products currently provided by BT Wholesale move into the BT Openreach division, which is already obligated to provide access on a nondiscriminatory basis. This solution is on the radar, and Ovum understands that Ofcom has been considering it since November of last year. Given the importance of these inputs to other mobile operators, a firm guarantee will be needed.

Dan Howdle, editor-in-chief at Cable.co.uk

“For BT to sustain its status as the biggest player in the UK telecoms market, moves to preside over its own mobile network have been the biggest and boldest writing on the wall for quite some time.

“With Virgin Media already offering ‘quad-play’ packages (broadband, TV, phone and mobile combined) and Sky hinting last week at its intention to do the same with the help of O2, BT has been left with little choice. To win, you have to play the game and up until today, BT has been letting its competitors have it all their way.

“Meanwhile, EE’s somewhat half-baked attempt to move into the TV market with EE TV – a service with a world-class set-top box and very little else – could now be interpreted as tempting bait for the takeover. BT currently relies on YouView (a joint venture with multiple content and service providers including major competitor TalkTalk) to provide the majority of its TV offering.

“While the mobile story is the headline, we should not forget that the move should also allow BT to become a self-contained supplier of both current and future TV content, and of the hardware on which to watch it. BT is back in contention as the strongest player in the UK consumer telecoms market.”

Rupert Wood, lead analyst for Analysys Mason’s Fixed Networks research programme

“For BT the deal is much quicker, more dependable, but much more expensive, way of gaining customer share in mobile market than its previous MVNO + femtocell approach. BT gets a good brand and a great network, and we’d expect to see some rebranding. Both will benefit from synergies in SAC / lower churn. There is strong evidence form other European markets that quad-plays have this effect.

“Fixed-mobile substitution is dead. In the past mobile business was based on the idea that it would gradually replace fixed. This is not happening, and the rise of connected TV makes it impossible. Mobile alone cannot make further great inroads into the consumer data market because no mobile network can carry the volumes of data required to substitute fixed fibre (Ofcom recently reported fixed data traffic growing at much faster rates than mobile, and the average fixed broadband connection carrying around 100 times more traffic than a mobile broadband connection) and because fixed plus Wi-Fi is now the default indoor network for nearly all consumer wireless traffic

“In the long run, infrastructure and very local physical presence will supplant spectrum as the key scarce resource for mobile. The spectrum of the wireless networks of the future will be plentiful and probably shared. Fixed operators with their own fibre infrastructure for backhaul have a head-start in terms of infrastructure and local presence.

“Unlike most European counterparts, BT has a functionally separated wholesale access division, so in theory the acquired EE would be at no advantage. But the fact that BT has a large retail broadband customer base will confer significant advantage because in the long run there will be synergies in combining retail broadband with wireless backhaul.

“The big operators are divesting mobile-only plays. Turn 180 degrees, and you see the latest example of a phenomenon across Europe. The sale of EE is the last stage in major multinational operators Deutsche Telekom and Orange divesting their stakes in mobile-only operators. Telefonica has done the same (and O2 UK is likely to be sold), and Vodafone has been busily buying up fixed operators. Vodafone UK is likely to launch re-enter fixed market this month, but its moves in other European markets have been dramatic.”

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