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BT/EE deal raises fears of 'undue market power'

Tuesday, December 16th 2014 by Ellen Branagh

BT's plans to buy EE are the latest in a series of ambitious strategic moves, but may lead to the firm having to give up some of its spectrum, according to an expert.

John Delaney, mobile analyst from IDC, said any deal for BT to buy EE, which owns Britain's largest mobile network, would be closely scrutinised by regulators to ensure BT does not have an undue market share.

Yesterday BT announced that it is in talks to buy EE for £12.5bn, with a "period of exclusivity" of several weeks allowing It to carry out negotiations.

The announcement comes after the telecoms giant previously revealed it was in talks to buy either EE, which is owned by Deutsche Telekom and Orange, or O2, which is owned by Telefonica.

Speaking to Cable.co.uk, Mr Delaney said buying EE – which has 24.5m customers – is the more ambitious of the two, as it would see BT become the UK's biggest fixed line and mobile operator.

He said: “Clearly the regulatory authorities are going to take closer scrutiny of this deal to make sure that it doesn’t give BT undue market power.

"They would have scrutinised the O2 deal but the EE deal is going to attract more diligence, I think."

Any deal to buy EE will most likely result in BT having to divest some of its mobile frequency spectrum, Mr Delaney said. Mobile providers pay the government for the right to transmit signals on different parts of the electromagnetic spectrum. BT and EE both already own rights to different parts of that spectrum.

“Looking at patterns of mobile acquisition across Europe over the past few years one of the things that tends to be required by regulators is some divesting of spectrum.

“There will probably be some more [concessions] as well, but I think the deal will get through eventually.

“I think BT wants the deal, needs the deal, enough to make whatever concessions are required.

'Strategic moves'

“There’s a lot of inponderables. What I would say is, as certain as anything can be certain, is that BT will acquire a mobile operator. And at the moment EE clearly looks favourable."

Mr Delaney said the move is the latest "bold and ambitious" move by BT group chief executive Gavin Patterson.

“If you look at BT Sport, and what it’s doing there, Patterson is clearly taking an ambitious approach to strategic moves," said Mr Delaney.

“And that’s the way he seems to have approached the deal with O2 and EE."

Mr Delaney said it was too early to rule out the possibility of BT purchasing O2, a company which was once part of BT. He said that, if concessions are made too onerous on the deal with EE, BT could look again at buying O2.

However, EE is an attractive proposition because of the strong market position it holds with its 4G network. 4G is the most modern mobile technology available and is increasingly important in providing a high level of user experience for mobile TV and video streaming, he added.

Having its own mobile network would enable BT to realise its ambitions to become a "quad-play" provider, offering broadband, television, home phone and mobile services.

“You can see the potential there from BT’s point of view from the quad-play and TV point of view and if it can get EE it will be in a much better."

In a statement, BT said the proposed acquisition would allow it to "accelerate its existing mobility strategy" and give customers "innovative, seamless services that combine the power of fibre broadband, wi-fi and 4G".

The proposed deal would see Deutsche Telekom hold a 12% stake in BT while Orange would hold a 4%.

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