Following BT agreeing final terms with Deutsche Telekom and Orange to buy their EE venture for £12.5bn (US$19bn) yesterday, attention has turned to the regulatory hurdles the deal will face.
BT anticipates the deal will be reviewed by the UK…
Following BT agreeing final terms with Deutsche Telekom and Orange to buy their EE venture for £12.5bn (US$19bn) yesterday, attention has turned to the regulatory hurdles the deal will face.
BT anticipates the deal will be reviewed by the UK Competition and Markets Authority (CMA), as opposed to the European Commission, and expects to close the acquisition before the end of March 2016.
Ovum analyst Matthew Howett said an analysis by the CMA may take between eight and 32 weeks, depending on what remedies are required.
BT believes there is a good chance it will be approved in a Phase I review, according to a source close to the deal, but also accepts it may go to Phase II. The fixed-line incumbent is said to be cautiously optimistic the transaction will be approved.
Of EE’s rivals in mobile only Vodafone has put its head above the parapet to comment on the deal; O2 and Three are finalising their own merger which is expected to face even more scrutiny from regulators than a BT-EE deal.
Vodafone’s CEO Vittorio Colao has warned that it would be very tempting for the combined BT-EE to restrict access to certain exclusive content and “suffocate” the rest of the market. He added that BT would have to “behave well”.
TelecomFinance understands that Vodafone would prefer a structural separation of infrastructure division Openreach from the BT group, which provides all operators with mobile backhaul, or at least stronger regulation imposed on the unit.
However, Openreach is already a subsidiary of BT and one source working on the BT-EE deal says the unit is seen as a model for unbundling the local loop in other European countries, adding that it is already heavily regulated.
Openreach is currently regulated as being affiliated to a fixed-line player but TelecomFinance understands that Vodafone may argue that it should now be regulated more stringently as it will soon be affiliated with a mobile operator.
Howett has said a “firm guarantee” on wholesale and backhaul will be needed, but added that he understands that the issue is on Ofcom’s radar which has been looking at possible further safeguards since last November.
Another key point of contention is expected be the amount of spectrum the BT-EE entity will hold, and it is understood that this is what BT expects the regulator to focus on.
BT acquired 50 MHz of 2.6 GHz spectrum last year while EE has 70 MHz, giving the two telcos 65% of the UK’s frequencies in this band. EE is already the UK’s most spectrum-rich operator and has 220 MHz, or 36.8%, of the country’s total 597.5 MHz in the hands of telcos, according to BTIG Research.
However, the situation is further complicated by Hutchison Whampoa’s subsequent move to acquire O2 from Telefonica and merge it with its UK business, Three, which will create an even more spectrum-rich operator.
While BT-EE is likely to be reviewed by the CMA, if Hutchison finalises a deal for O2, that tie-up would go to the European Commission (EC), meaning both regulators would be looking into the UK spectrum market at the same time.
In this scenario, seen as the most likely at this point, the CMA and EC would work together alongside Ofcom, which would provide advice to both entities, to reach an acceptable reorganisation of licences between the players.
Howett summed up by saying: “At this point in time, things generally look promising and the green light is likely to be given, albeit with concessions needed.”
