Out-Law News 3 min. read

BT wins approval from UK competition authority to complete EE acquisition

BT has been given clearance to complete its planned £12.5 billion takeover of EE by the UK's Competition and Markets Authority (CMA).

The regulator said the merger is "not expected to result in a substantial lessening of competition (SLC) in any market or markets in the UK, including in relation to the supply of retail mobile, wholesale mobile, mobile backhaul, wholesale broadband and retail broadband services".

The CMA had carried out an in-depth investigation into the proposed deal. The CMA's final decision in the case is in line with a provisional view it expressed in October last year.

John Wotton, who chaired the inquiry group at the CMA responsible for assessing the potential effects on competition of BT's takeover of EE, said: "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."

"The retail mobile services market in the UK is competitive, with 4 main mobile providers and a substantial number of smaller operators. 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. We have also found that in supplying services such as backhaul, wholesale mobile or wholesale broadband services a combined BT/EE would not have both the ability and the incentive to disadvantage competitors such that there would be significant harm to competition," Wotton said.

The CMA said that it had received complaints from other companies in the telecoms market about issues that were outside of its remit in investigating the proposed merger. According to a summary report (15-page / 261KB PDF) it has published, those issues include "the functional separation of Openreach", BT's network infrastructure division, and "the effectiveness of the regulation of superfast broadband inputs".

UK telecoms regulator Ofcom is currently undertaking a strategic review of the digital communications market in the UK. Some of BT's rivals, including Vodafone, have asked the regulator to require BT to sell off Openreach. In June 2015, in a submission to the Ofcom review, Sky called on the regulator to refer the UK's telecoms market to the CMA for a full competition investigation "as soon as possible", after raising concern about BT's power in the market, which it said stemmed from its relationship with Openreach. BT has said it would be wrong to require it to split up its business.

Competition law expert Angelique Bret of Pinsent Masons, the law firm behind Out-Law.com, said that consolidation in the telecoms sector is increasing as businesses seek to offer a wider breadth of services to their customers often referred to as 'quad-play' which is the bundling together of TV, broadband, phone and mobile services as a package. Bret said telecoms companies are adopting this approach in the face of competition from 'over the top' service providers such as Skype, WhatsApp and Netflix.

"The CMA’s focus is to consider the risk of a merger creating market power which could result in higher prices and/or fewer choices for consumers," Bret said. "This is balanced against the merits of consolidation in terms of efficiencies and savings from economies of scale and potentially, increased investment."

"In this case, BT and EE offered largely complementary services so that any direct overlap between them was limited and the CMA was apparently satisfied that concerns raised by mobile operators in relation to backhaul, and the risk of discrimination in favour of EE, were largely unfounded given the regulation of Openreach by Ofcom and the existence of competing suppliers such as Virgin Media and mobile operators which provide their own backhaul. Ofcom’s input into the investigation no doubt played an important part," she said.

Bret said that if the European Commission approves the planned merger between Hutchison/Three and O2 the combined entity will act as a constraint on any potential market power BT/EE might have in the mobile market.

Currently EE's parent companies are Deutsche Telekom and Orange. As part of the deal concluded for the sale of EE to BT, Deutsche Telekom and Orange will obtain a 12% and 4% stake in BT respectively. BT said that this transfer of shares is scheduled to take place on 29 January and that a representative from Deutsche Telekom will also take up a place on its board, in line with the terms of the deal for the sale of EE, " in due course".

BT chief executive Gavin Patterson said: "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."

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