It’s good to merge—analysing the BT/EE merger

Market Tracker analysis: Are we entering into a new phase for the European telecoms market? Daniel Preiskel, senior partner at Preiskel and Co looks at how the BT/EE merger, set to complete by the end of the year, may impact on the telecoms industry in the UK and Europe.

Background

In December 2014, BT started exclusive talks to buy EE, Britain’s largest mobile operator, for £12.5bn as part of its plans to make itself a major ‘quad-play’ provider of mobile, broadband, home phone and TV services.

Is the European telecoms market entering a phase of consolidation?

The consolidation trend in the EU telecoms market is likely to continue as the sector remains fragmented in comparison with regions where this process started earlier, such as in the US and Asia markets. For example, mobile network operators in the EU are mindful to point out that the US has a handful of operators covering 50 States covering a population of over 300 million and are therefore looking to drive further consolidation in the fragmented EU markets.

What has driven this?

The European telecoms market seems to be following a global trend. The increasing popularity and importance of new technologies and services—such as 4G, cloud computing, OTT voice calling apps and broadband among businesses and individuals—has increased competition in the sector. In the EU, other factors contribute to stimulate competition in view of the efforts towards the creation of a single telecoms market, including proposals such as the EU Commission’s Connected Continent plan.

Do we expect to see a relaxed regulatory approach to mergers in the telecoms sector?

The deal raises the central question of whether the current regulatory regime is fit for purpose, and whether there is a need for reform (or at least updating) given the speed of change in the markets, and the fact that the current regime is beginning to creak at the seams. The jury is still out on quad-play and whether customers want all their services from the same supplier. Also, competitors will raise issues and the competition and regulatory authorities can be expected to carefully consider the transaction in terms of whether other players that rely on BT to supply its fixed access network services on fair reasonable and non-discriminatory terms will continue to obtain those services in a timely fashion.

What issues does industry consolidation raise for M&A practitioners?

The BT/EE merger is at the cutting edge of the consolidation of telecoms players in the EU, and is likely to set a precedent for a series of deals that are rumoured to be stacked up in the background, for example with 3UK/O2 having been announced shortly afterwards. M&A lawyers could be in for a busy and lucrative time, though they will need to make sure they are supported by leading telecoms competition experts to help secure those all-important regulatory clearances.

What impact is the BT/EE merger likely to have on the UK telecoms market?

This transaction stands to potentially help BT more efficiently serve its customers, particularly if it allows greater integration of fixed and mobile products to meet their expectations of increased customer appetite for quad-play. Combinations of quad-play products from a combination of fixed and network services are increasingly being touted as the future for the industry.

Interviewed by Anne Bruce.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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