BT-EE merger investigation jumps to phase 2

10 Jun 2015

The UK’s Competition & Markets Authority (CMA) yesterday (9 June 2015) referred the country’s largest fixed network operator BT Group’s proposed acquisition of mobile market leader EE for an in-depth ‘phase 2’ investigation, in response to BT’s request for a ‘fast track’ reference to phase 2, submitted on 15 May. The CMA commenced its phase 1 investigation on 18 May 2015 but quickly concluded that the merger agreement ‘gives rise to a realistic prospect of a substantial lessening of competition in relation to the supply of wholesale access and call origination services to mobile virtual network operators and fibre mobile backhaul services to mobile network operators in the UK’, and therefore deemed it appropriate to proceed with a fast track reference of the merger to phase 2.

The CMA added in its decision that significant competition concerns were raised during its initial consultation regarding the impact of the merger on other markets, including the retail mobile market in the UK, but, given that the criteria for a fast track reference were met on the basis of the two (wholesale/backhaul) issues identified above, it was not necessary for the comptroller to reach a conclusion at phase 1 in relation to these other concerns. Third parties will now have an opportunity to present their views on the merger (not restricted to the two aforementioned wholesale/backhaul issues) during the phase 2 investigation.

Andrea Coscelli of the CMA said: ‘BT and EE … supply important inputs at the wholesale level, which enable other communications providers to compete at the retail level in the provision of mobile services. We have found that there is a real risk that the merger could reduce their incentives to supply these inputs and that this could have a detrimental impact on the retail mobile market. BT and EE have recognised that the issues in this case are complex and that the test for reference at phase 1 would be met. They therefore requested use of the fast track procedure and, after due consideration, we believe this to be appropriate.’

In early February 2015 BT agreed definitive terms to acquire EE for GBP12.5 billion (USD18.9 billion) from Orange Group and Deutsche Telekom (DT). Upon completion (expected before end-March 2016) DT will take a 12% stake in BT and appoint one non-executive member of the BT Board of Directors, while Orange will hold a 4% BT stake.

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