BT, the UK’s former national telecommunications company, have announced that they have entered exclusive talks with Deutsche Telekom and Orange regarding the possible acquisition of the UK’s largest mobile operator, EE for £12.5 billion (approximately $20 billion) through a combination of debt and equity. If the deal goes ahead under the planned arrangement, Deutsche Telekom would hold 12% of BT and seat on the Board of Directors. Orange would hold 4% of BT. The industry consensus was that BT were closer to a deal with Spanish mobile operator, Telefonica, regarding UK network O2. EE are already BT’s chosen network partner for the BT mobile network due to be released “when ready,” and BT have already stated that should negotiations break down, they believe they’ll maintain a good working relationship with EE to deliver their mobile network next year.
It’s a potentially interesting fit. BT used to own Cellnet, which through a series of convoluted deals went on to become O2. EE were formed when T-Mobile and Orange merged, but currently run three different brands in the UK (T-Mobile, Orange and EE, although only EE offers a 4G LTE service). The combined market share of EE in the UK market is just over one-third, with O2 and Vodafone occupying the second and third place and 3UK coming in fourth place. EE’s network is also the greatest in terms of mast capacity and arguably the most dynamic and interesting if we include their plans to introduce Category 9 LTE coverage next year. Combining EE’s large network with BT’s mobile network plans could form a giant network if nothing changes from the network side of things. Essentially, BT are planning to use their massive portfolio of WiFi hot-spots for a network based over VoIP technologies and the reason for the delay is associated with handover issues when transferring a call from a WiFi to a mobile network. However, the UK competition authorities are likely to insist on a number of changes that could, perhaps, unsettle the market. Maybe EE will be forced to sell off some of their spectrum? And perhaps the change of leadership at EE will help the business, because despite being handed almost a year of LTE exclusivity by the UK government (by allowing EE to refarm some of their existing 1,800 MHz coverage as LTE) their advantage was effectively squandered by high prices and poor coverage.
BT need things to go well. Either, they can walk away as the new owners of EE, or if the deal fails, they retain their good working relationship. Their worst case would be to lose both deals and need to find a new network partner. If the deal goes through and BT acquire EE, it should put pricing pressure onto the rest of the UK market as BT has stated that their VoIP network will be very competitively priced. Still, these things take time: BT have said that negotiations will take several weeks and even if things run to the schedule, it’s likely to be months before we see the carrier change owners and even longer before the market changes.