BT to buy mobile firm EE for £12.5bn

EE will make BT a market leader in the UK 4G mobile market

Telecoms group BT has paid £12.5bn to buy mobile operator EE.

The takeover creates a communications giant covering fixed-line phones, broadband, mobile and TV.

The stock market greeted the move by sending BT shares up by 4.5%, to the highest since 2001, when it sold off its old mobile operation O2.

But rivals TalkTalk and Vodafone have already called for competition authorities to step in and force BT to spin off its Openreach operation.

The deal sees BT buying all EE shares currently held by Orange and Deutsche Telekom.

Then Deutsche Telekom will receive 12% in the new combined business and have a seat on the board.

Orange will receive a 4% stake, as well as about £3.4bn in cash.

The deal more than trebles BT's retail customers adding the 10 million it already had to EE's 24.5 million direct mobile subscribers.

Competition issues

But the deal puts BT in what many see as a dominant position in the market.

Too crowded - the UK telecoms industry looks set to consolidate

TalkTalk and Vodafone say regulators should force BT to spin off its Openreach fixed line division, which enables other telecoms companies to access its network.

Vodafone chief executive Vittorio Colao said: "Ideally, a structural separation of Openreach would be optimal."

BT's chief executive Gavin Patterson said he did not expect competition authorities to impose stringent remedies and the deal would need to be scrutinised in Britain, rather than Brussels.

Analysis: Rory Cellan-Jones, Technology correspondent

"The new, old BT" is how Vodafone's boss Vittorio Colao described what will emerge if the EE deal goes ahead. Critics say it will be rather like the British Telecom of old, which dominated fixed line services and, with Cellnet, was also big in mobile. Except, with access to 24.5 million EE mobile customers and the biggest fibre broadband network, BT looks even stronger.

When the takeover was first mooted last year, it was assumed there would be few competition issues. But now, with Three's bid for O2, and other deals in the offing, it looks as though the whole telecoms landscape is being redrawn.

BT accepts that UK competition authorities will want to take a look at the deal. But analysts think European regulators may also get involved. Currently, all the regulators look at the mobile and fixed markets separately. But in the new world of "quad play" - where one operator offers mobile, fixed line, broadband and TV - that may make little sense.

It is BT's Openreach division, which owns the fibre network used by all the mobile operators to carry calls and data, which will be the focus for the regulators. Rivals say that once BT owns a mobile network it will be tempted to give it preferential treatment. They would like to see Openreach split off into a separate company.

Savings

BT says it now plans to raise £1bn through a placing of new shares to help fund the deal.

It said in a statement: "The combination of EE and BT will provide customers with innovative, seamless services that combine the power of fibre broadband with wi-fi and advanced mobile capabilities."

BT says that within four years, the deal will be saving it £360m a year in terms of operating costs and capital investment.

It added that by combining the two businesses, it should be able to generate an extra £1.6bn a year in sales.

BT chief executive Gavin Patterson said: "This is a major milestone for BT as it will allow us to accelerate our mobility plans and increase our investment in them."

He said the money being spent on the deal did not affect its plans ahead of the multi-billion pound Premier League rights auction, where it is in tough competition with rival Sky.

Consolidation

The mobile phone market is expected to consolidate further. Hutchison Whampoa, which owns rival Three, is said to be in talks to buy O2.

There has been speculation that Virgin may tie up with Vodafone.

Vodafone is to offer broadband services to UK households from this spring.

But at present, it is still fighting to return to growth. On Thursday, it reported that UK revenues showed a slight rise (0.9%) in the last three months of 2014, while European sales were still declining.

BT has started the UK market consolidation

Meanwhile, Sky has also announced the launch of its own mobile service, through a deal with O2's network.

Dan Ridsdale, analyst at Edison Investment Research, said: "In the space of a few months, the UK telecoms landscape has changed enormously. As the majors fill in the gaps in their offerings, competition to offer multi-play bundles is going to step up significantly.

"Whether this will be beneficial for consumers is a very different question. The bundling of services makes it much more difficult to compare pricing, while more premium TV content is likely to move away from free to air."

The BT-EE deal is expected to be finalised by March next year, subject to approval by shareholders of BT and scrutiny from the Competition and Markets Authority.

Analysis: Matthew Wall, Business reporter

BT's purchase of mobile operator EE is part of its grand plan to become a digital publisher along the lines of Netflix, Amazon and Sky, not just a network provider.

It will now be able to distribute its content and services via TV, desktop and mobile, so that customers can access what they want, when and however they want it. Add those three services to BT's fixed-line operation, and the company now becomes a big player in what is called "quad-play".

As our smartphone screens get bigger, we're watching more video and TV on the move, and these big files need fast download speeds. So EE's lead in the high-speed 4G mobile space gives BT a big boost.

And as competition for eyeballs in a multimedia, on-demand world intensifies, an extra 7.7 million customers to sell stuff to always helps. Rooting out duplication in the combined companies could save hundreds of millions a year, says BT.

Will those savings be passed on to customers in the form of lower bills? Almost certainly, if BT is serious about becoming a global media powerhouse.