Why BT + EE Makes More Sense
After 13 years without its own true mobile operations, BT is ready to open its wallet and acquire a UK wireless operator to make itself a fully formed telco once more.
The major focus right now is, understandably, on how BT Group plc (NYSE: BT; London: BTA) is in talks to buy Telefónica UK Ltd. (O2 UK), the grown-up version of the mobile operator it spun off in 2001. (See Eurobites: BT in Talks to Buy O2.)
It makes for a great story -- how BT offloaded a cellular business in 2001 and might now buy it back in a deal with a potential valuation of at £10 billion (US$15.7 billion). Such a move would give BT a mobile customer base of 23 million and enable it to market a true quad-play offer of fixed line, broadband, TV and mobile services.
But BT is also discussing a potential M&A deal with the UK's largest mobile operator, EE , which has about 27 million customers. Its joint owners, Deutsche Telekom and Orange, have been looking at various ways to exit the UK mobile market, with IPO rumors cropping up regularly. A trade sale to BT in one form or another would also suit the co-owners. (See Eurobites: DT, Orange Back in EE Sale Talks.)
In my view, the EE deal makes more sense for BT, even if it would likely cost more -- maybe about £13 billion ($20.4 billion). It has already struck a 4G services partnership with EE, and the mobile operator resells BT's fixed broadband services, so a relationship is already established and some of the technical and commercial due diligence has already been undertaken. (See Euronews: BT Signs 4G MVNO Deal.)
More importantly, though, EE is the 4G LTE market leader in the UK and is pursuing an aggressive timetable of network upgrades to LTE-Advanced and beyond to stay ahead of rivals such as Vodafone and O2. It has also been undertaking significant video service delivery trials and focusing resources on creating a mobile broadband service that suits the needs of progressive enterprises. (See EE to Trial 4G Broadcast in Scotland.)
The combination of BT, which also comes with a nationwide network and data center operations that will come in very handy for backhaul transport and cloud services management, with EE would create a more compelling combination for next-generation (and in particular enterprise) service delivery than BT and O2 UK, though the latter would still obviously give the incumbent telco a prominent seat at the mobile table.
Of course, BT might not be able to strike any such M&A deal and have to continue with its EE partnership and the development of its own wireless services, using the spectrum assets it does own. However, it has shown its hand now and expectations are high, and it's the acquisition of EE that, for me, would provide BT with the best chance to dominate the UK communications services market in the future, provide the best deal for its shareholders and scare the living daylights out of Vodafone.
— Ray Le Maistre, , Editor-in-Chief, Light Reading