BT, Orange and Deutsche Telekom said on Thursday they have agreed definitive terms on a deal that will see the former UK incumbent buy 100% of the EE mobile business for £12.5 billion, paving the way for the French and German telecoms giants to exit the UK mobile market and for BT to redefine itself as a provider of converged fixed and mobile services.
BT said the consideration for EE will be payable as a combination of cash and new BT ordinary shares issued to both Deutsche Telekom and Orange. The German incumbent noted that it would become the largest shareholder in BT with a stake of around 12% upon closing of the transaction. Orange said it would receive £3.4 billion in cash and a 4% stake in the combined BT/EE entity, although like Deutsche Telekom it noted that the final amounts of cash received would be subject to customary adjustments at the time of closing, expected to take place before the end of March 2016.
“This is a major milestone for BT as it will allow us to accelerate our mobility plans and increase our investment in them. The UK’s leading 4G network will now dovetail with the UK’s biggest fibre network, helping to create the leading converged communications provider in the UK,” said BT CEO Gavin Patterson.
Deutsche Telekom noted that the business combination would make BT the number one on the UK market as a n integrated provider of fixed network and mobile communications.
In the 2013/14 financial year (to 31st March), the company generated revenue of £18.3 billion and an adjusted EBITDA of £6.1 billion. EE currently has more than 30 million customers and in 2014 generated revenue of £6.3 billion with an adjusted EBITDA of £1.6 billion. The business combination with EE is expected to create synergies with a net present value of £4.6 billion (after integration costs) in areas such as sales, marketing, administration, and cross- and up-selling in connection with integrated products combining mobile, fixed-network services, and TV.
Rupert Wood, principal analyst at Analysys Mason, noted that the deal is a much quicker but much more expensive way for BT to gain customer share in the mobile market than its previous MVNO and femtocell approach. “BT gets a good brand and a great network, and we’d expect to see some rebranding,” Wood commented.
It’s not yet clear what BT will do about its existing plan to build a small cell network to serve mobile needs within the home: “BT will need to iron out the details of converging its planned ‘inside-out’, MVNO/4G/WiFi hybrid service with EE’s mainstream 4G LTE network,” noted Peter Briggs, senior analyst at Current Analysis.
The deal has some far reaching implications not just for the UK market but also for the general trend in Europe towards offering quad-play or converged fixed and mobile services.
“The big operators are divesting mobile-only plays,” said Wood. “Turn 180 degrees, and you see the latest example of a phenomenon across Europe. The sale of EE is the last stage in major multinational operators Deutsche Telekom and Orange divesting their stakes in mobile-only operators. Telefonica has done the same (and O2 UK is likely to be sold), and Vodafone has been busily buying up fixed operators. Vodafone UK is likely to re-enter the fixed market this month, but its moves in other European markets have been dramatic.”
Briggs commented that the acquisition will produce service and synergy opportunities that EE would have struggled to achieve alone, although he added that BT will need to quickly identify, retain and grow those BT/EE “customer households”.
“We can expect to see a proliferation of quad-play offers from existing quad-play providers Virgin Media and TalkTalk, soon to be joined by new players Vodafone and Sky,” Briggs added.
