Should you celebrate the planned BT EE deal?
OPINION Andy Vandervell unpicks the ins and outs of BT’s planned purchase of the mobile operator EE and how it will affect regular folk
Back in December, BT set its sights on buying EE for £12.5 billion as part of its plans to become the ultimate 'quad-play' provider of mobile, broadband, home phone and TV services. Today it confirmed that the deal has completed due diligence and it's now setting a timetable to complete the deal by the end of this year.
If BT’s EE purchase is successful, it could have a huge impact on ‘telecoms’ in the UK. It's a big deal. Read on to find out why.
Why is this deal such big news?
In short, because BT and EE combined would be the largest telecoms provider in the UK.
According to Ofcom, the UK’s telecoms regulator, BT is the largest fixed broadband provider in the UK. It has 31 per cent of the market, slightly ahead of Virgin Media and Sky with 20 per cent each and Talk Talk with 15 per cent – EE has three per cent.
EE, meanwhile, is the largest mobile network in the UK by revenue with a similarly large 33.8 per cent of the market. As of May 2014, EE had 3.6 million 4G subscribers, which is considerably more than all three of its rivals.
Just as important, possibly more so, EE has the most mature 4G network. EE’s 4G network reaches around 75 per cent of the UK population, almost more than O2 (41 per cent) and Vodafone (36 per cent) combined. It also boasts the highest 4G top speeds, although according Open Signal it doesn’t have the fastest average speeds – that crown goes to Vodafone, which also has the fewest 4G users.
Clearly, a merger of BT and EE would create a company with considerably more combined broadband and mobile customers than any other in the UK. It would also have the best 4G network, which would help expand the group’s home broadband reach into remote areas.
And this affects me, how?
One argument goes that this would allow BT and EE to offer better deals than rivals based on ‘quad-play’ contracts. Quad-play means bundling TV, broadband, mobile phone and home phone services into one big contract, something that’s quite popular in some other countries. Quad-play is the equivalent of those yellow, ‘Buy 4 for £10’ deals in Tesco. The more you buy, the better deal… in theory.
Many companies, such as Sky, TalkTalk and BT currently, offer three out of four services. Virgin Media is the only quad-play provider in the UK at present, but its mobile market share is small. It’s what’s known as a ‘virtual’ mobile operator, which means it piggybacks on another network. That network? EE. Awkward!
Many experts believe that quad-play is the future. That being the case, a BT/EE marriage would create the largest quad-play team by a decent margin – a company with the most broadband, mobile and landline customers and a growing TV arm thanks to BT’s aggressive pursuit of sports rights. It wouldn't be wholly dominant in any of the three, but its combined clout would be significant.
Lower prices sounds great, is there a catch?
In the immediate future this deal could result in lower prices if you sign-up to a quad-play deal, but there are some potential negatives.
One is a lack of freedom. While saving money sounds fantastic, buying four services from one provider will make it tricky to change providers in future. For example, you may be happy with the mobile service you get, but unhappy with your broadband. Switching to another provider will be more difficult and you’ll lose your savings if you 'unbundle' them. It makes people less likely to switch, which is exactly why companies like BT like the idea.
Another potential problem is competition. EE and BT’s rivals are likely to argue that the deal will give the combined company too much power and give them an unfair advantage.
Whether this is true will largely depend on what happens next. Some experts believe the deal will trigger a spate of similar deals. Vodafone is tipped to swallow Liberty Global (owners of Virgin Media) in a potential £80 billion deal. Then there’s Hutchinson Whampoa, a huge multinational that owns Three in the UK, which is reportedly interested in O2.
Then there's Sky, which currently has no mobile network of its own. It recently announced plans to form a 'virtual network' with O2 so that it could enter the 'quad-play' market. It would be starting from nothing, though, whereas BT is buying the largest network outright.
Basically, we’re looking at the corporate equivalent of Game of Thrones here where O2 is the Starks – one way or another someone is going to buy O2.
If you follow this line of logic a little further, the result could be considerably fewer large telecoms providers in the UK. Most believe a minimum of three is needed to maintain good competition, but depending on how things work out those three could have a disproportionally strong hand.
Another sobering thought is that BT and EE both came bottom in their respective markets for customer service according to recent Ofcom reports.
Is BT buying EE a good thing?
I’d say it’s interesting rather than obviously good. There are benefits, but the long-term implications for us as consumers are hard to predict.
The best-case scenario is three or four titans competing for our money with lower prices and more investment in innovative services. Certainly, in the short term BT and EE combined ought to offer better deals, while BT’s competition with Sky for sports rights is a long overdue development.
But my main concern is that, in the long term, we’ll end up with two or three large players that offer more or less the same thing. That, after an initial flurry of competition and attractive deals, large quad-play providers will settle down to milking what they have.
It might take a few years for that reality to pan out, but for me that is reason enough not to immediately jump for joy at BT and EE getting together.
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