OPINION Now that the UK’s competition authority has approved BT’s purchase of EE, Andy Vandervell looks at the implications for consumers.
Back in December 2014, BT set its sights on buying EE for £12.5 billion as part of its plans to become the ultimate ‘quad-play’ provider of mobile, broadband, home phone and TV services.
Over a year later, the Competition and Markets Authority (CMA) has bestowed its final clearance on the deal, paving the way for the creation of the largest telecoms provider in the UK.
The combined firm will command a hugely powerful position in both fixed-line broadband and mobile broadband, and could have a lasting impact on how we access the internet in the UK.
Live Updates – News and comment as it happens
11:05 – BT welcomes CMA decision
BT, unsurprisingly, welcomes the decision, as BT’s Chief Executive Gavin Patterson confirmed:
“It is great news that the CMA has approved our acquisition of EE. We are pleased they have found there to be no significant lessening of competition following an in-depth investigation lasting more than ten months.
“The combined BT and EE will be a digital champion for the UK, providing high levels of investment and driving innovation in a highly competitive market. I have no doubt that consumers, businesses and communities will benefit as we combine the power of fibre broadband with the convenience of leading edge mobile services. I look forward to welcoming EE into the BT family”.
11:00 – CMA comment on verdict
John Wotton of the CMA had this to say about its decision to clear the deal:
“Since our provisional findings, we have taken extra time to consider responses in detail but the evidence does not show that this merger is likely to cause significant harm to competition or the interests of consumers.
“As BT is a smaller operator in mobile, it is unlikely that the merger will have a significant effect. Similarly, EE is only a minor player in retail broadband, so again it is unlikely that the merger will have a significant effect in this market.”
Why is this deal such big news?
In short, because BT and EE combined would be the largest telecoms provider in the UK.
According to Ofcom, the UK’s telecoms regulator, BT is the largest fixed broadband provider in the UK. It has 31 per cent of the market, slightly ahead of Virgin Media and Sky with 20 per cent each and Talk Talk with 15 per cent – EE has three per cent.
EE, meanwhile, is the largest mobile network in the UK by revenue with a similarly large 33.8 per cent of the market. As of May 2014, EE had 3.6 million 4G subscribers, which is considerably more than all three of its rivals.
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Just as important, possibly more so, EE has the most mature 4G network. OpenSignal, a firm that uses mobile apps to measure mobile network performance, ranks EE as having the best 4G network in the UK by a comfortable margin.
Ofcom’s official numbers, meanwhile, indicate that EE’s 4G network covers 81% of the UK – O2 and Vodafone manage just 66% and 65% respectively, while Three trails on 53% as of March 2015.
It would also have the best 4G network, which would help expand the group’s home broadband reach into remote areas.
And this affects me, how?
One argument goes that this would allow BT and EE to offer better deals than rivals based on ‘quad-play’ contracts. Quad-play means bundling TV, broadband, mobile phone and home phone services into one big contract, something that’s quite popular in some other countries. Quad-play is the equivalent of those yellow, ‘Buy 4 for £10’ deals in Tesco. The more you buy, the better deal… in theory.
Many companies, such as Sky, TalkTalk and BT, offer three out of four services. Virgin Media is a quad-play provider in the UK, but its mobile market share is small. It’s what’s known as a ‘virtual’ mobile operator, which means it piggybacks on another network. That network? EE.
Many experts believe that quad-play is the future. That being the case, a BT/EE marriage would create the largest quad-play team by a decent margin – a company with the most broadband, mobile and landline customers and a growing TV arm thanks to BT’s aggressive pursuit of sports rights.
It wouldn’t be wholly dominant in any of the three, but its combined clout would be significant.
Lower prices sounds great, is there a catch?
In the immediate future this deal could result in lower prices if you sign-up to a quad-play deal, but there are some potential negatives.
One is a lack of freedom.
Of course, rivals feel that the combined company would have too much power, but the CMA’s verdict has dampened that argument against the merger.
That isn’t quite the end of the matter, however, as Ofcom is still to rule on whether parts of BT’s operation need to be broken up. Under most scrutiny is BT Openreach, the part of BT responsible to rolling out broadband services to the whole of the UK. Most broadband providers effectively buy their access to broadband in the UK from BT Openreach, which makes it an important cog in the UK’s telecoms supply.
The boss Ofcom has already hinted they would prefer to take some action and the spinning off of BT Openreach is increasingly likely in light of the CMA’s verdict on this merger.
BT’s move to buy EE has sparked similar activity from rival firms. Hutchinson, which owns Three, wants to buy rival mobile network O2 – a deal that would leave the UK with three major mobile networks. The EU is ruling on that particular purchase at the moment.
For a while Liberty Global owners of Virgin Media) was tipped to purchase Vodafone in a potential £80 billion deal too, but that deal never came to anything.
Then there’s Sky, a direct competitor to BT in TV, broadband and landlines, which currently has no mobile network of its own. However, it recently confirmed plans to enter the mobile market in partnership with O2 as a virtual network provider just like Virgin Media.
Is BT buying EE a good thing?
I’d say it’s interesting rather than obviously good. There are benefits, but the long-term implications for us as consumers are hard to predict.
The best-case scenario is three or four titans competing for our money with lower prices and more investment in innovative services. Certainly, in the short term BT and EE combined ought to offer better deals, while BT’s competition with Sky for sports rights is a long overdue development.
But my main concern is that, in the long term, we’ll end up with two or three large players that offer more or less the same thing. After an initial flurry of competition and attractive deals, large quad-play providers might settle down to milking what they have.
Whereas currently we enjoy the benefits of four serious mobile networks all offering something slightly different – Three, for example, offers liberal data plans and no roaming costs in many popular holiday destinations. Fewer big companies will have less incentive to innovate or compete on price.