Why BT is Acquiring EE

Feb 11, 2015

Written By Billy Sexton, Editor, AllAboutLaw.co.uk

BT is keen on becoming ‘B-TEE’ is the not too distant future by finalising a £12.5bn acquisition of EE. Freshfields, Norton Rose Fulbright and Clifford Chance have been called in to advise on the deal, but why are BT so keen on re-entering the mobile telecoms market, some 14 years after selling off O2?

BT will carry out a shares purchase (as opposed to an asset purchase) of EE, meaning that it will acquire all of EE’s assets and liabilities. No doubt there has been a lot of trainee lawyers at Freshfields carrying out lots of due diligence on EE so that BT know exactly what they are acquiring and any liabilities they will inherit. Deutsche Telekom will receive 12% of the new company, with a seat on the board. Orange will receive a 4% stake, and a handsome £3.4bn in cash.

But why are BT so keen to re-enter the mobile battleground? It’s all about their consumer offering. BT are keen to offer a ‘quad-play’ package that bundles together home phone, broadband, TV and mobile contracts into one deal. It would allow big savings for the consumer. For example, they won’t have a £40 mobile contract, along with a £25 broadband contract and another £25 a month TV bill. Rather, they’ll have all of these offerings for a combined price of £60 a month for example, representing a saving of £30, or 33%, for the consumer.

‘Quad-play’ also partly explains why BT and Sky are paying through the nose for the rights to air Premier League football. The two companies paid a combined total of £5.1bn for the rights to show live games, but the return on investment won’t come from TV subscriptions alone, but a broadband, landline and TV combined package. With BT acquiring EE and being able to offer a mobile phone deal as part of this package, they hope to trump Sky and Virgin Media by being able to offer more services to the consumer.

So where does this leave the market? Will BT come to dominate? Not necessarily.

Some companies, such as Talk Talk, look set to fall by the wayside. However, other operators are supposedly considering their own mergers and acquisitions too. For example, Sky is teaming up with Telefonica to offer UK mobile contracts from 2016, and they already offer Sky-Go on mobile and tablet devices to Vodafone customers.

Similarly, O2, who BT were eyeing as a back-up if the EE deal fell through, are in talks to be purchased by Li Ka-shing, who happens to own Three mobile network. A merger or acquisition of these two networks (which would be priced at around £10bn) would see them come to dominate 40% of the mobile network market in the UK. This may be subject to approval by competition authorities, who are wary of having three, rather than four, network operators.

There are also been concerns that fewer competitors means less choice for consumers. With the number of companies offering these essential services dwindling, consumers may experience greater price increases with no option to shop elsewhere. Additionally, with a significantly larger number of consumers, the level of customer service could plummet.

Nevertheless, BT’s acquisition of EE will shake up the market, with ‘merger mania’ not an impossible result.

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