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The £12.5bn merger between BT and EE has cleared another hurdle after the Competition and Markets Authority gave the deal its provisional approval.
Although both BT and EE operate largely in separate areas – with BT strongest in fixed voice, broadband and pay TV and EE dominant in mobile communications – the CMA’s inquiry group declared earlier in 2015 that it believed it presented a significant risk of damaging the competitiveness of the UK communications sector. The CMA conducted a lengthy probe into the proposed acquisition to examine how the merger might affect competition.
This included how the enlarged group might have altered incentives to continue to supply wholesale network services to other communications services providers (CSPs).
After examining retail mobile, wholesale mobile, mobile backhaul, wholesale broadband and retail fixed broadband, the CMA has now provisionally said that it does not expect the merger to result in a “substantial lessening of competition”.
Elaborating on the decision, inquiry chair John Wotton said he recognised the acquisition was important to many consumers and businesses, and acknowledged the concerns raised during the consultation process by a number of competitors.
“We provisionally think that the retail mobile market in the UK, with four main mobile providers and a substantial number of smaller operators, is competitive. As BT is a smaller operator in mobile, it is unlikely that the merger will have a significant effect on competition,” said Wotton.
“By the same token, it is unlikely that the merger will have a significant effect on competition in the retail broadband market, where EE is only a minor player.
“We have also been looking at the ways in which, as a merged company, BT/EE might try to disadvantage competitors which it supplied with services such as backhaul, wholesale mobile or wholesale broadband services. We have provisionally found that, in some areas, it is unlikely that they would have both the ability and incentive to do so – and, in others, that the effects of their attempting to do so would be limited.”
Openreach verdict left to Ofcom
Wotton added that the CMA had only considered the position of Openreach to the extent that it was relevant to the merger itself. He acknowledged the concerns raised by many over the future of Openreach in the BT Group, but said these would be better addressed by Ofcom in its market review.
Kester Mann, principal analyst, operators at CCS Insight, said the announcement was a victory for BT, but would undoubtedly cause rivals calling for structural separation of BT from Openreach to shout louder.
“Assuming the deal receives final approval, it would allow BT to launch a potent strategy to cross-sell broadband and TV services to 'new' mobile customers. Another benefit is immediate access to an extensive retail network that would enable it to articulate the merits of a multiplay service,” said Mann.
He added that the proposed deal between Three and O2 was still far from guaranteed, because it would reduce the number of mobile operators in the market. A similar move in Denmark recently collapsed for this reason, he pointed out, while current sentiment among European regulators was to frown on in-market consolidation.