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January 15, 2016updated 31 Aug 2016 10:08am

CMA approves BT’s £12.5bn EE buyout

News: Largest fixed operator buys largest mobile operator.

By Alexander Sword

BT’s acquisition of EE has been cleared by the Competition and Markets Authority (CMA).

The CMA found no serious lessening of competition (SLC) in any of the markets in which the two players operate.

Costing £12.5 billion, the buy will combine the UK’s largest fixed telecoms operator with its largest mobile operator.

BT Chief Executive Gavin Patterson said: "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."

There has been little expectation that the CMA would oppose the merger; in October, the CMA provisionally cleared the merger.

In August, Ofcom issued a report to the CMA saying that the merger would not adversely affect competition and that it would be able to regulate the new firm through its existing powers.

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Issues raised about the merger include the detrimental effects of the loss of BT as a potential competitor in the consumer mobile market; this was a prospect due to BT’s ability to cross-sell and ownership of spectrum in one of the bands used for 4G services (2.6 GHz.)

There were also concerns raised by Vodafone that these spectrum advantages would provide an "unmatchable advantage".

Ofcom found, however, that BT would have been poorly placed to enter this market and that the peak speeds cited by Vodafone are rarely available to consumers anyway.

The report also argued that EE was not a significant enough player in the broadband market for the merger to change anything and that no player in the wholesale mobile market had significant market power.

Where Ofcom did see harm it claimed it could regulate BT effectively with its existing powers.

While this deal will now go ahead, other activity in the UK telecoms market will probably be more controversial, including the future of OpenReach and Three owner Hutchinson Whampoa’s acquisition of O2.

Kester Mann, Principal Analyst at CCS Insight, explains that one of the main concerns of the combined entity will be ensuring the right branding.

"It is inevitable that BT will move to replace the EE name, however it would be unwise to rush into this too soon. The EE brand has benefitted from strong investment to become synonymous with widespread 4G coverage.

"A challenge for BT’s mobile ambitions in the consumer market is its legacy association with fixed-line services. This could be particularly relevant for the youth market, unaware of BT’s previous mobile ventures. However, strong recent promotion of the fledgling BT Mobile offering is helping to address this.

"On the enterprise side, BT might be better advised to rebrand more quickly given its already established strong presence in this sector. Indeed, the company might well end up taking a phased approach, that retains the EE name for longer in certain segments before withdrawing completely in the long-term."

However, the main priority, Mann says, should be ensuring the "behind-the-scenes integration" of the two operators; he argues that this should precede any branding efforts.

Read outgoing EE CEO Olaf Swantee’s thoughts on the ‘defect-free network’ that the buy will allow here.

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