News
Everyone wants to have their say as the CMA gives the green light to the U.K.’s mega-merger.
Opinions are like elbows…everyone’s got them.
OK, that’s not exactly how the saying goes, but this is a family Website.
Given that knowing one’s A from one’s elbow isn’t a requirement when it comes to sharing opinions, I have an inbox and various newsfeeds full of them today, in the wake of the U.K. Competition and Markets Authority’s (CMA’s) decision to green-light BT’s £12.5 billion EE acquisition.
Well, if everyone else has one, we at Total Telecom want one too, so here goes…
While BT is celebrating the CMA’s decision – it announced on Friday that it expects to complete the takeover on 29 January – as far as the rest of the industry is concerned, this is not the end, but just the beginning.
The takeover transforms the U.K. from a market in which there are a number of fairly evenly-matched competitors into one in which there is a clear strong leader with a handful of followers. But it seems unlikely that that will remain the status quo for long. Those that wish to compete effectively will have to bulk up.
There is already another major acquisition in the pipeline in the U.K., with CK Hutchison and Telefonica in the process of securing EU approval, or so they hope, for the £10.25 billion deal that will bring together their 3UK and O2 UK mobile businesses.
If the deal goes ahead the merged entity will become the largest mobile operator in the U.K., but will still lack a fixed-line business at a time when converged and bundled services are becoming more desirable to consumers.
Hence, it is safe to suggest, there is more deal-making to come, although O2/3UK has yet to be seriously linked with anyone on the fixed-line side.
As it stands, the U.K.’s major fixed broadband and TV players are building up their businesses organically. Sky has a strong content offering and fixed broadband base, and is working on the launch of a mobile virtual network operator (MVNO) service; TalkTalk is seeking to establish itself as a quad-play provider, with a growing mobile and TV business; and Virgin Media, which has the U.K.’s most well-established MVNO, is working on a £3 billion fixed network infill project. But it would come as no surprise if one or more of those companies elected to speed up the process by forging closer ties with a mobile operator.
Indeed, 2016 brought fresh rumours that Vodafone and Virgin Media parent Liberty Global are once again looking at merger options. The pair admitted to holding talks about certain assets last year, but discussions fell apart in September.
The competition
Vodafone, which is gradually building a fixed-line market presence, having rolled out a U.K.-wide broadband service last year, remains vocal in its objections to the BT/EE merger.
On Friday it said it is was carefully reviewing the CMA’s ruling on the deal, which perhaps suggests it may be considering taking action.
Meanwhile, TalkTalk published a lengthy statement in opposition to the deal, noting that it is "disappointed, although not surprised," about the CMA’s decision.
"It is dangerous that the regulator has looked at this merger in isolation, given the unprecedented levels of consolidation taking place in the wider telecoms industry," the telco said.
"The U.K. has long been one of the most competitive markets in Europe, but if the 3/O2 merger also goes through, this would end," it added. "Indeed, if the experience of other European markets such as Ireland and Austria is any guide, moving from four to three mobile providers will lead to price increases of 25% or more."
Both TalkTalk and Vodafone also took the opportunity to reiterate their concerns about the structure of the fixed-line market in the U.K., specifically, the role of BT’s local access network arm Openreach and the ongoing question of structural separation.
"As previously stated, we believe it is imperative that the wider market concerns relating to BT Openreach raised by a number of parties and recognised by the CMA, need to be thoroughly scrutinised by Ofcom in its Digital Communications Review," Vodafone said.
"Given BT Group’s increased size and scale, the need to ensure that the U.K.’s broadband infrastructure is not neglected is more important than ever, and we have every confidence that Ofcom will take this into account when considering the future structure of Openreach," TalkTalk added.
The analysts
BT’s rivals are not the only ones wondering about the impact the deal will have on Openreach.
"We are not very surprised that the CMA has decided against competitive remedies in the BT/EE retail business. We did, however, expect that there might have been some remedies in the carrier’s carrier part of BT’s operations, since it is a dominant player in some important carrier markets," said IDC associate vice president, mobility, John Delaney.
He noted that Openreach supplies infrastructure and services for most U.K. ISPs and provides a significant amount of mobile backhaul.
"Evidently, the CMA was unconvinced by arguments that were made for applying remedies in this area, such as requiring the divestment of Openreach," Delaney said. "However, it will be important for the U.K. regulators to keep a close watch on BT’s carrier’s-carrier operations post-merger, to continue ensuring fair play in this area."
The analyst community also addressed the ‘what next?’ question for BT, or BeeTee, as Delaney lightheartedly suggested the new entity could be named.
For CCS Insight principal analyst Kester Mann, the rebrand of the new merged entity is a key area of focus, and one that could significantly affect the fortunes of the company going forward. It is "inevitable" that BT will look to replace the EE name, but it might do well to adopt a slower, phased approach to rebranding, he suggested.
"The deal paves the way for significant high-street rebranding," he said. "BT’s lack of retail presence is its Achilles heel, but converting EE shops will enable it to present and communicate bundles of mobile, broadband and TV face-to-face. This could give it a major boost as the U.K. market inexorably evolves towards multiplay."
Mann added that BT could look to rebrand its new mobile assets more quickly in the enterprise space, given that it already has an established presence there in its own name.
Delaney also picked up on the additional opportunities open to BT in the business mobile space, where to date Vodafone has dominated.
"The BT/EE deal is likely to change that, and perhaps quite quickly," Delaney said. "We believe that BT will leverage its brand strength and its existing customer base to mount an early and vigorous campaign on the U.K. business mobile market," he predicted. "This is low-hanging fruit for BT, since the only substantial investment that it will require is in marketing."
And those are two analysts who know exactly where their elbows are!
Have a great weekend, all.
