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August 14, 2015

Ofcom report to BT’s EE buyout – no major competition or regulation concerns

Report shines more green light than red on proposed merger.

By Alexander Sword

Ofcom issued a report to the Competition and Markets Authority (CMA) saying BT’s £12bn merger with EE would not adversely hit competition and that it could regulate the merged firm through its existing powers.

In the submission, the telecoms regulator said that BT’s acquisition would not significantly impact competition in any of the markets it competed in, including consumer mobile, wholesale mobile and broadband.

The report is currently under review by the CMA the UK’s competition watchdog, as part of its process in considering to back or block the proposed merger.

Ofcom was asked to submit a report following the CMA’s decision to refer the case for an in-depth Phase 2 investigation.

Issues raised by the CMA and covered in the report include the potential detrimental effects of the loss of BT as a potential competitor in the consumer mobile market.

The CMA had highlighted the prospect that the deal would stop BT entering the mobile market as a player in its own right, a possibility due to BT’s assets and ability to cross-sell, as well as its ownership of spectrum in one of the bands used for 4G services (2.6 GHz).

Ofcom said BT would have been poorly placed to enter the consumer market anyway due to a lack of retail presence on the high street and its lack of a national network.

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However, it added that BT’s potential importance to the market was contingent on whether Three owner Hutchinson Whampoa’s acquisition of O2 was allowed. If the deal proceeded without remedies to facilitate competition, Ofcom argued, this could make BT’s presence in the market more important.

Ofcom also addressed concerns that the merger would damage competition due to the higher peak speeds the combined company would command.

Vodafone, for example, had commented that "BT/EE will have an unmatchable advantage in terms of its spectrum holdings…Vodafone and the other mobile network operators (MNOs) will face significantly greater capacity constraints with regard to spectrum thereby constraining their ability to compete effectively with EE."

However, Ofcom acknowledged BT and EE would be able to provide higher peak speeds together due to the combined spectrum, EE is already offering the highest peak speeds in the market, meaning this would not create a significant change. It also argued that peak speeds 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 impact it particularly. In addition, Ofcom found that no player in the wholesale mobile market had significant market power (SMP).

Ofcom did see some potential for harm in some areas due to the deal. For example, BT might have an incentive to discriminate in favour of downstream divisions. BTWholesale’s long-term contracts with MNOs, including volume commitments, could limit the extent of dark fibre MNOs could take up in the short term.

However, Ofcom claimed its current powers were sufficient to regulate in these areas.

If approved, BT-EE will be in a powerful position in the quad-play market of companies offering pay-TV, fixed line, broadband and mobile. BT and EE are the leaders in fixed line and broadband respectively.

"BT-EE will be in a much stronger position, because not only do they have a proper network with lots of customers, but they also have stores," said Charlotte Patrick, Research Director at Gartner, speaking to CBR previously.

The newly formed BT-EE conglomerate would have roughly 580 stores including franchises compared to Sky’s 250.

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