UK authorities have given the final seal of approval to BT's £12.5 billion (US$17.9 billion) takeover of EE, a deal that will create a fixed-and-mobile powerhouse in the UK telecom market by the end of this month. (See BT Locks Down £12.5B EE Takeover Deal.)
The deal brings together the country's biggest fixed and mobile operators and has been fiercely criticized by their rivals, which fear it will give rise to a new monopoly years after the market was first deregulated.
The combined entity will serve more than 25 million mobile connections and have about 8.8 million broadband customers. According to TalkTalk , the UK's fourth-largest broadband company, it will control as much as 45% of UK wireless spectrum and about 40% of the consumer telecom market.
"We are disappointed, although not surprised, that the CMA has waived through the BT/EE merger, even though the new entity will be even more dominant than it was before privatization 30 years ago," said TalkTalk in a company statement.
Yet the UK's Competition and Markets Authority (CMA) has dismissed the various concerns about the merger, arguing that it will not result in a substantial reduction of competition in any of the sectors in which BT Group plc (NYSE: BT; London: BTA) and EE provide services.
The CMA's broad rationale is that because BT and EE operate largely in separate service sectors, a merger of their operations will not produce a dominant player.
This means BT will not have to make any of the immediate concessions that rivals had been demanding, which had included the divestment of some of its spectrum licenses following a merger.
Competitors including TalkTalk and mobile operator Vodafone Group plc (NYSE: VOD) have even been calling for the break-up of the former state-owned monopoly, believing that a spin-off of BT's Openreach access network business would address many competition-related concerns.
"We have heard wider concerns about the sector, including about Openreach and its regulation by Ofcom [the UK's telecom regulator]," said John Wotton, who chaired the CMA's inquiry. "There is also an ongoing Ofcom review into the sector and its future regulation, where such concerns may have more relevance." (See Ofcom Does Not Rule Out BT Carve-Up.)
Both TalkTalk and Vodafone have troubled wholesale arrangements with BT and Vodafone is particularly unhappy about having to purchase backhaul services from a business that will soon be its main mobile competitor.
Smaller fixed-line infrastructure rivals such as CityFibre have been vigorously courting retail operators in the last few months, hopeful that a merger between BT and EE will drive some business their way. (See UK Needs Fiber Infrastructure Rivalry – CityFibre.)
But the CMA insists that concerns about BT's wholesale position are groundless.
"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," said Wotton.
Similarly, in the retail market, the tie-up will not lead to a meaningful reduction in competition in either the fixed or mobile markets, according to the CMA's analysis.
"As BT is a smaller operator in mobile, it is unlikely that the merger will have a significant effect," explained Wotton. "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."
Next page: Bullish BT