As the media giant seems to be pursue the acquisition of EE we find out what the UK mobile industry is saying…
Paolo Pescatore, director, multiplay and media, CCS Insight.
‘We consider EE to be a more desirable asset for BT to own than O2 and thus view its move as a major statement of intent regarding its multi-play aspirations.
‘EE has a more developed 4G network and has more mobile subscribers than any other UK operator. This offers a significant and highly attractive target market for BT to cross-sell fixed-line services to. Furthermore, the purchase builds on the existing close links between the two companies.
‘More importantly however, it removes a converged rival from the market. Given that EE had multi-play aspirations of its own, BT will now face one fewer competitor.
‘However, we see the deal as more complicated and time-consuming and thus consider it as a more risky option. In particuar, the deal will be subject to more stringent regulatory hurdles than buying O2. It combines the UK market-leader in fixed-line with the number one mobile operator. We believe it is unlikely that Ofcom would block the deal, but the combined entity could be forced to dispose of some spectrum. The regulator could also mandate the demerger of either of both of BT’s Openreach and Wholesale units.
‘Furthermore EE is owned by two companies that haven’t always agreed unanimously on strategy for EE – this could make the deal more time-consuming to complete. EE is also still in the process of consolidating a complicated mix of networks, brands and back-office systems. The deal to buy O2 wouldn’t have involved this level of complexity.
‘BT’s move reflects the company’s strong ambitions in multi-play and serves as a clear warning to UK rivals, notably Vodafone, Sky and Virgin Media. These companies will be forced to review their position as the market for convergence in the UK rapidly comes to the boil.
‘Buying EE will enable BT to cross-sell broadband and TV services to “new” mobile customers. If marketed and positioned effectively, BT could secure subscribers for many years to come. Another major benefit is that it would gain immediate access to an extensive retail network. We consider BT's absence from the high street a major weakness given that articulating the merits of a multiplay service are best done in person at the point of sale.
‘As the only pure-play mobile operators remaining in the UK, 3 and O2 could become vulnerable if UK consumers embrace multi-play. BT’s move opens the market up for further potential consolidation involving these companies.’
Philip Kendall, executive director, wireless operator strategies, Strategy Analytics
‘In catapulting BT to the top of the mobile market and re-writing its planned quad-play entry strategy, an acquisition of EE will raise the quad-play stakes at a time when EE and Vodafone were planning more organic paths. UK mobile consumers are not that bothered by quad-plays, but an increased marketing and promotional profile will shift sentiment in 2015.
‘The deal represents a challenge for the UK’s other mobile operators: For Vodafone, entry into the quad-play market with an organic growth plan may not be enough and it may want to explore wireline acquisition targets as it has done in other European markets.
‘For Three, a further move in the market towards quad-play may not concern it in the medium term. It has remained committed to its mobile-only strategy and with EBITDA margins of over 20%, is an effective player in this space. However, it may begin to struggle if mobile is increasingly used as a promotional offer in bundles.
‘For O2, BT’s move pulls the market in a direction it has been unwilling to travel. More scale might help here (e.g. a merger with Three), though would do little to help it combat a growing reputation as a lower cost player in the market. A credible wireline play would be increasingly important to fight against the muscle of BT, Virgin, Vodafone and Sky.’
Dominic Baliszewski, telecoms expert, broadbandchoices.co.uk
‘BT has gone full circle with the acquisition of mobile network EE, having only left the mobile space 12 years ago when it sold BT Cellnet. The trend for providers to offer the full suite of home comms services (broadband, TV, mobile, landline) is showing no sign of slowing, but UK customers have not yet embraced quad-play as enthusiastically as in other European countries, such as Spain, where quad-play is hugely successful. UK customers largely view a mobile phone as a personal purchase rather than part of their household spend so a fundamental shift in perception is needed to make quad-play the norm.
‘That being said, quad-play does have the potential to save customers a great deal of money and BT in particular has the infrastructure at its disposal to offer some truly compelling pricing alongside robust coverage (both from EE's best-in-market UK mobile coverage and BT’s 5 million Wi-Fi hotspots). Throw in some tasty freebies in a similar vein to the ‘free BT Sport’ offer of the previous 12 months and you have a tempting proposition. This is unlikely to be the only example of consolidation we see in telecoms over the next year or so, but it is important that customers are not dazzled by the marketing surrounding Quad-Play. Bundles are cheaper because providers want to avoid customer churn, but do stay focused on what you need from a mobile phone service: quality of coverage, network speed and a generous data allowance are all just as important as how much you actually pay.
‘Should this deal go ahead, millions of people who are both EE mobile customers and BT broadband/TV customers already will effectively become triple or quad play BT customers without even blinking. If you find yourself in this situation, don’t feel rushed or pressured into signing up to a new contract. BT will likely offer some very attractive customer retention deals but it is always worth taking the time to compare and understand what you need Vs. what you want – especially in an increasingly complicated market.’
Matt Howett and James Robinson, Analysts at Ovum
‘Firstly it’s important to stress that the competition issues raised by BT’s acquisition attempt of EE will be handled by European competition authorities, rather than by Ofcom, the national telecoms regulator. On the face of it, things look promising and the green light is likely to be given, albeit with some concessions. Recent remedies imposed in Germany and Ireland came about because the number of mobile operators was being reduced, however this transaction preserves a four player market in the UK. That said, BT was particularly successful in the 2013 4G spectrum auction acquiring spectrum at 2.6GHz and regulators are likely to focus on the combined entity's overall spectrum portfolio.
‘Competition issues would be more relevant if Hutchinson Three turned their attention to acquiring O2, as some reports have indicated they were considering. This would see a change in the number of operators, something Ofcom has fought tirelessly to preserve. If the BT/EE tie-up goes ahead, the other MNOs in the UK are likely to ask for a guarantee that wholesale products BT currently provides for mobile backhaul will continue to be offered on a non-discriminatory basis – something which has recently become an active debate in the UK.
‘From a commercial perspective, the firms are largely complimentary as the UK market moves towards quad-play. This will help from a competition perspective too as Vodafone bought Ono in Spain and Kabel Deutschland in Germany without competition hurdles. The move would reduce a quad-play rival in the UK, but EE’s TV service has only been launched recently, so competition would not be damaged in practical terms. Spectrum could be a concession as the merged firm’s 2.6GHz holding would be large, but O2 and 3 could be interested in this as they currently don’t have anything in that band. The deal also shows that BT is prepared to spend to get itself into a good position for the future. However, it may restrict its ability to bid for games in the football rights auction, which has just begun.
‘O2 is likely to be the biggest loser should the move be successful. Telefonica has made it clear that it was interested in exiting the UK and it could now struggle commercially against its convergent rivals BT, Virgin and Vodafone. From the wireline perspective Sky and TalkTalk may also be marginalised if quad-play proves successful, although they have not made such public proclamations as O2 to exit the market.’
More to follow