BT-EE Competition Inquiry Will Consider Impact Of Three-O2 Merger

The Competition and Markets Authority (CMA)’s investigation into BT’s proposed £12.5 billion takeover of EE will take into account the Three-O2 merger and the potential impact of the deal on the retail and wholesale markets for mobile and broadband services, as well as mobile backhaul.

An ‘issues’ document for phase 2 of the investigation has been published, outlining what factors will be considered in deciding whether to impose any conditions on the transaction, which BT hopes to complete by early 2016, if it is to be approved.

The CMA said its inquiries would take into account the “parallel” Three-O2 merger, which is currently subject to approval from the European Commission and would bring the number of mobile operators in the UK down from four to three. However the authority admits it is difficult to predict what actions may take and the deal could still be referred to the CMA itself.

Backhaul

Elsewhere, the investigation will see whether the deal will distort the market in other areas, either by harming competition or allowing the new company to harm other players in the mobile and fixed broadband markets.

All four mobile operators currently rely on BT for backhaul services, but it has been suggested that EE could be prioritised in terms of investment and service, and charged cheaper prices, while other operators could experience worse service and higher costs.

“This is one of the potential concerns arising from the proposed BT / EE merger,” Ofcom said last week as part of its separate review of the UK communications market, it’s first for a decade.

The CMA will also see if EE, through its MBNL joint venture with Three, will opt for BT backhaul services ahead of other providers, harming BT’s competitors and preventing investment in alternative fibre infrastructure.

Wholesale access

BT already has a mobile virtual network operator (MVNO) agreement with EE and is pressing ahead with plans to create a hybrid network comprising its MVNO and BT Wi-Fi network.

It plans to continue with this strategy regardless of whether it completes the transaction and the CMA will attempt to gauge what impact the BT MVNO would have had on the market and whether the loss of this competition will significantly aid EE given BT’s ability to offer bundled services.

Similarly, it will be determined whether the merger would provide EE with access to BT services, such as Wi-Fi, that could give it an advantage that other operators simply can’t match. Ofcom has said it is happy with the level of mobile competition at present, but says it it is keeping tabs on development, including the BT-EE deal.

The investigation will also see whether EE would offer inferior MVNO services to BT’s fixed competitors, such as Virgin Media, or not offer them at all. This lack of choice could potentially damage rival’s bargaining position with the likes of O2 or Vodafone, increasing price. In the fixed broadband market, the CMA acknowledges there is no overlap, but will still see if competition in some areas might be affected.

Decision time

The inquiry will take into account future trends, such as convergence, and will also see if consumers and businesses stand to benefit from the deal thanks to network efficiencies.

The CMA opened its inquiry in March and has already received a complaint from CityFibre which said Ofcom should be allowed to enforce additional regulatory measures on BT if the EE takeover is given clearance in order to deliver a “level playing field.”

There has been speculation that BT might be forced to spin off Openreach as a condition of clearance but Openreach CEO Joe Garner has said “with great confidence” he does not expect this to happen.

Industry experts believe the deal will get the go-ahead, albeit with concessions –  possibly with regards to spectrum holdings.

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