BT gets out the £12.5bn big guns to buy EE

Boss Gavin Patterson has decided big is better - but will have to beware the regulators.

by Rachel Savage
Last Updated: 17 Feb 2015

In the end, BT boss Gavin Patterson decided big is better in his bid to go mobile, opting to try to buy the UK’s biggest mobile network EE for £12.5bn instead of bringing O2 back into the fold - a move that will irk rivals and regulators alike.

The former state-owned telecoms giant said yesterday that it had entered an ‘exclusivity deal’ with EE’s half-and-half owners Deutsche Telekom and Orange that would last several weeks while it did its due diligence.

Taking on Sky at its own game - Read MT's interview with BT chief exec Gavin Patterson

The £12.5bn deal would be part cash and part newly-issued shares, with Deutsche Telekom getting a 12% stake in the combined company and the right to appoint one board member, and Orange holding 4% but getting more money. Clearly EE’s owners are confident BT’s share price is going to keep going up, having fallen back recently from the 420p it reached on December 5th - a giddy height not seen since the dot com crash.

Source: Yahoo Finance

The shares element of the deal is also important for BT (although they slipped some 0.5% to around 396p this morning) as it goes toe-to-toe with Sky in the costly auction for Premier League TV rights that started this week and faces the prospect of having to fork out more to cover the deficit in its pension fund, which is currently undergoing a triennial review.

The deal would allow the immaculately coiffed Patterson to offer customers the newly hallowed ‘quadplay’ - broadband, TV, mobile and landline services together. But it will also attract the attention of regulator Ofcom if it successfully buys EE’s 24.5 million customers and 4G spectrum rights (it already owns some of its own rights and has been quietly reentering the mobile market on its own, 13 years after selling off Cellnet - now O2).

BT owns vital telecoms infrastructure - fibre broadband through its hugely profitable Openreach business and ‘backhaul’ services that link mobile masts with operators’ networks through its Wholesale unit. Ofcom may force BT to sell part of its infrastructure or 4G rights, limit the money it can make from infrastructure and/or look to bring together regulation of the currently separately legislated ‘quadplay’ services.

Its competitors are also not going to take this lying down. Debt-laden Telefonica is still desperate to get rid of O2, which is valued at around £9bn - a possible buyer could be Three, although its owner Hutchinson Whampoa has indicated it would be keen to buy more spectrum if Ofcom forced BT to get rid of some. Sky, which has been adding broadband to its TV and content businesses, faces the question of whether it needs to get itself a mobile business. Vodafone will no doubt also push for BT to have its wings clipped.

What is certain is that this is only the first move in a wave of consolidation across the telecoms and media industries.

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