Broadband services

BT, EE Defend $19.9B Merger Plans

UK operators BT and EE have defended their planned merger, claiming it will benefit consumers and wholesale customers and accusing their critics of acting purely out of self-interest.

Announced earlier this year, the £12.5 billion (US$19.9 billion) deal would bring together the country's fixed-line incumbent and its biggest mobile operator and has stoked concern among rivals who fear it would make it even harder for them to compete. (See BT Locks Down £12.5B EE Takeover Deal.)

With UK competition authorities scrutinizing the arrangement, BT Group plc (NYSE: BT; London: BTA) and EE have been mounting a vigorous defense of their plans and have this week released a report arguing the UK needs a "digital champion" to cope with soaring levels of data usage.

According to research they have commissioned from media and telecom consultancy Communications Chambers, fixed Internet traffic will double over the four years to 2018 while mobile Internet traffic will increase 6.4 times.

"The success of the UK in the future will be built on its ability to deliver real-time, data-heavy information through leading-edge network technology," said Olaf Swantee, EE's chief executive, in a prepared statement. "Bringing BT and EE together makes that possible."

Swantee also accused service providers that have been opposing the merger of being investment-averse. "These competitors only want to put up roadblocks, while we want to build motorways for the UK," he said.

BT and EE now claim to have invested a total of £35 billion ($55.6 billion) in the UK during the past ten years. Much of BT's capital expenditure has gone into the rollout of a fiber-based broadband network, while EE has spent heavily on the deployment of what is now the country's most extensive 4G network.

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

But rivals might argue the two operators have been unfairly helped by regulation.

Service providers that rely on BT's network to offer broadband services have repeatedly suggested the former state-owned monopoly has been given too much pricing freedom, and is able to "squeeze" them through a combination of high wholesale fees and low retail prices.

A dramatic solution proposed by Vodafone UK -- the UK's third-biggest mobile operator, which recently entered the broadband market -- would involve forcing BT to spin off its Openreach access business as an entirely separate company, leaving BT's retail division in the same position as Sky and TalkTalk , the second- and fourth-biggest broadband operators respectively. (See Vodafone May Buy Content to Fight BT, Telefónica.)

Ofcom , the UK's telecom regulator, has previously told Light Reading that all options are on the table during its current strategic review of the sector -- the first it has carried out in a decade -- although it seems unlikely to mandate a measure as extreme as "structural separation." (See Ofcom Does Not Rule Out BT Carve-Up.)

Competitors will also note that EE was given a head start in the market for super-fast mobile services when authorities allowed the company to "re-farm" 2G spectrum for use with 4G technology.

Brought into existence through an earlier merger between Orange UK and T-Mobile UK -- the local divisions of France's Orange (NYSE: FTE) and Germany's Deutsche Telekom AG (NYSE: DT) -- EE also controls far more spectrum than any of its rivals and would have an even bigger frequency advantage following a tie-up with BT.

Vittorio Colao, Vodafone Group plc (NYSE: VOD)'s chief executive, recently told analysts that BT and EE should have to relinquish some of their spectrum holdings before they are allowed to merge.

CityFibre , a service provider building high-speed broadband networks in a number of UK cities, has also complained that BT is receiving £500 million ($795 million) in state funds to support broadband deployment in rural areas even though it is generating "excess profits" from its infrastructure business. (See Split BT to Lessen Regulation, Says CityFibre.)

BT and EE hope the UK Competition and Markets Authority (CMA) will give the green light to their merger plans by the end of March next year.

But authorities have recently flagged concern about the impact the deal will have on the overall market. "We have found there is a real risk that the merger could reduce their incentives to supply these inputs and that this could have a detrimental impact on the retail mobile market," said Andrea Coscelli, the CMA's executive director of markets and mergers.

Earlier this week, European Union competition commissioner Magrethe Vestager lashed out at claims that in-country consolidation will spur telecom investment, saying she had seen little evidence to support this case.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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