Ofcom Raises No Significant Concerns About BT-EE Merger

Ofcom has indicated it has no serious objections to the proposed £12.5 billion purchase of EE by BT, providing a major boost to hopes the transaction can be completed early next year.

In a 69-page submission to the Competitions and Market Authority (CMA), Ofcom addressed concerns raised by rival communications providers such as Sky, TalkTalk and Vodafone as well as issues raised by the CMA itself.

However the telecoms regulator says it believes current regulation should be enough to limit the power of the combined entity, even if it does have some issues.

“We recognise that, as a vertically integrated firm, BT may have the incentive to discriminate in favour of its downstream divisions, and we impose regulation to address such concerns,” the watchdog said. “We believe the current and future proposed regulation that we apply to BT will limit BT’s ability to discriminate over price, quality and innovation in the provision of leased lines.”

Fixed and retail impact

Ofcom is not worried about the impact on fixed broadband, where EE has limited influence, and has minor concerns about the retail mobile market.

It says BT’s 2.6GHz spectrum holdings, market reach and Wi-Fi network would have given it an advantage over other mobile virtual network operators (MVNOs) in challenging the other four operators. Ofcom suggests BT would have achieved 5-10 percent market share by 2020, but accepts the technical challenges have been much more difficult than previously thought.

Indeed, Ofcom’s document focuses more on wholesale arrangements for backhaul and MVNO access.

Backhaul challenge

At present, BT provides backhaul services to all four major operators and has no mobile service its own. However there are fears BT would be able to prioritise innovations that would benefit EE and discriminate other operators in terms of service and price.

BT is by far and away the largest provider of backhaul and is regulated accordingly. However in recent years a number of other providers have emerged and there are fears EE and Three’s network infrastructure joint-venture MBNL might favour BT for backhaul over other providers, freezing them out of the market.

However Ofcom believes proposed access to dark fibre will mitigate any threat and there will plenty of market share for other backhaul providers to compete for.

“While we believe that the requirement to provide access to dark fibre could limit any potential attempts to discriminate over product innovation, this will only be the case if all MNOs have opportunities to take up dark fibre,” it said.

“Given that the MNOs currently have long-term contracts with BTW which include volume commitments, these commitments may limit the extent of dark fibre they can take up. This could be particularly concerning if BT were to choose to release EE (or MBNL) from its contractual commitments post-merger.”

MVNO access

As bundled services become more prevalent in the UK market, many fixed providers like Sky and TalkTalk are offering MVNO services. They fear BT may choose to limit access to EE’s network, increase prices or offer an inferior service – either damaging rivals’ MVNOs are leaving them in a poor bargaining position when negotiating with Vodafone and a possible combined O2-Three.

MVNO access is not regulated but Ofcom says if there was ever a position that one provider had significant market power, it could intervene.

The CMA has accepted submissions from a number of firms and will take into account the parallel O2-Three merger. 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.

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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