British competition watchdog seeks initial views on BT-EE tie-up

16 Mar 2015

With the British antitrust watchdog the Competition and Markets Authority (CMA) having begun its initial examination of fixed line incumbent BT’s proposed acquisition of mobile network operator EE, it has requested ‘early views’ on the matter, the Financial Times reports. It is understood that, with a view to assessing the likely impact of the deal on the UK’s telecoms sectors, the regulator has sent letters to interested parties, including the country’s major telecoms and media groups, requesting input on the planned merger of what are the country’s largest fixed and mobile voice operators by subscribers. Responses are reportedly expected to be submitted this week, with this ‘preliminary invitation to comment’ coming ahead of a full inquiry into the deal, which it is claimed will be the largest to be put before the CMA.

In a letter seen by the UK press outlet, the CMA was said to have flagged up several areas which it believes could be affected by the BT-EE tie-up, including how the fixed line operator provides connections between mobile masts for its soon-to-be rival cellular operators. Such competitors meanwhile are expected to argue that BT should offer improved wholesale access to the fibre infrastructure that connects their masts, with one unnamed executive cited as saying: ‘When BT was giving us all the same sort of service without being in the game, that was OK … But it will own the largest mobile group and will in effect be paying itself for access to its mobile backhaul.’ Further, it is widely believed that the CMA will be asked to consider whether BT’s infrastructure arm Openreach should be required to provide ‘dark fibre’ access to other operators at a regulated price set by Ofcom and on the same terms as other parts of BT. Some operators have, however, already called for the break-up of Openreach, with both TalkTalk and Sky last week arguing that Ofcom should consider such a plan.

For its part, BT said of the initial examination of the planned purchase: ‘We are pleased the CMA has begun to ask industry for its views … This was always going to be part of the process, and we welcome the fact that industry is being given an early opportunity to provide comments. We believe the proposed acquisition will be positive for consumers, businesses and the UK, with BT creating a world-class digital infrastructure for Britain.’

As previously reported by CommsUpdate, in early February 2015 BT agreed definitive terms to acquire EE for GBP12.5 billion (USD18.9 billion). As per the terms of the deal, the consideration for EE will be payable as a combination of cash and new BT ordinary shares issued to both of the mobile operator’s current parent companies, Deutsche Telekom (DT) and Orange Group. This cash consideration will reportedly be financed by a combination of new debt financing and approximately GBP1 billion from the placing of new BT shares, with the Equity Placing to be launched ‘in due course’. Following both the transaction itself and the Equity Placing, DT will hold a 12% stake in BT and be entitled to appoint one non-executive member of the BT Board of Directors, while Orange Group will hold a 4% stake in the British company. With the deal subject to approval by BT shareholders and merger clearance, in particular from the CMA, it is expected to be completed before the end of BT’s 2015/16 financial year (March 2016).

United Kingdom, BT Group (incl. Openreach), EE