Five things you need to know about BT’s bid for EE
BT’s bid to buy mobile telecoms group EE for £12.5 billion has now been completely cleared by the Competition and Markets Authority, which means it will go ahead shortly. The company has been interested in expanding its mobile services for a while, and was rumoured earlier in the year to be investigating O2 as a potential purchase.
This merger will allow BT to deliver a fully-functional ‘quad-play’ service. This quad-play package involves the bundling of home phone, broadband, TV and mobile contracts into one deal – ostensibly allowing big savings. It’s a system that’s proving increasingly popular, particularly in overseas markets.
But what makes this different to the hundreds of corporate deals and takeovers that happen every day? As it happens, quite a lot. Read on to find out five things you need to know about BT’s purchase of EE.
1. BT will become the biggest service provider in the UK
The first result of this purchase will be that BT will own a large share of the market. It already controls 31% of the fixed-broadband market, according to Ofcom figures, as well as 37.6% of home phone traffic. This merger would add EE’s 33.8% control of the mobile sector to their already-inflated portfolio.
The similar merger of Orange and T-Mobile – that birthed EE – in 2010 saw the company take an immediate and commanding market lead. The company dominated the industry to the extent that in the 2012 auction of 4G spectrum bandwidths, Ofcom had to step in to prevent smaller companies like Three from being muscled out altogether.
Rival companies are already complaining that this deal would provide BT with an unfair competitive advantage. Our own Barry Collins has previously said that “no sane regulator would give [this deal] the green light” when it was first rumoured.
2. Customer service could get even worse
Both companies are ranked lowest for customer service in their respective fields, and are widely derided for their poor handling of issues and complaints.
Of special note is BT: not only did Ofcom reveal their satisfaction rate to be “significantly lower than average”, “They also performed below average on specific customer service measures including speed and ease of getting through to the right person, time taken to handle issues and offering compensation or a goodwill payment.”
BT previously admitted that it struggled to cope with the rush of customers following the launch of BT Sport. Attempting to integrate EE’s 24.5 million subscribers with its existing services could provide a similar scenario, and therefore put BT’s customer service to the test – potentially resulting in a further drop in customer satisfaction standards.
3. Price rises could be imminent
Another potential downside of the deal is the looming spectre of price increases. £12.5 billion is a lot of money, and although some of it will be paid in the form of shares, around £7 billion will still need to be paid by the company.
BT said it expects significant savings from cuts to services such as its IT department, thanks to a more centralised service. However, these cuts have only been valued at £5 billion according to a Barclays analyst, and it’s not unlikely that BT will try to split the cost of its new purchase with its subscribers.
It wouldn’t be the first time customers’ bills have felt the sting of a new acquisition either. The live football rights required by BT Sport (for which the company is still facing substantial payments) saw prices rise for end users of its home phone and broadband services.
Although the company never admitted a direct link between the addition of BT Sport and the price hikes. The increases were widely unpopular, and it’s a situation that could be repeated here.
4. It could be even harder to change networks
According to Technology Media Telecoms analyst Dan Ridsdale, one side effect of the deal is that it will “reduce churn”. In layman’s terms, this refers to the number of contractual customers who leave a service, and is frequently used as a measure of market satisfaction.
This is because it’s incredibly difficult to change provider for one aspect of a bundled contract, particularly since ‘unbundling’ it will invalidate any savings.
For example, if you’re unhappy with the broadband aspect of your quad-play contract, switching to Talk-Talk or Virgin whilst keeping the rest of your services is likely to be incredibly difficult. This could allow BT to retain customers for longer, even if they are not happy with the service.
5. It’s definitely happening
Up until today, it wasn’t certain that BT would be allowed to go ahead with the merger on competition grounds. The clearance from the Competition and Markets authority means this big regulatory hurdle is cleared. As John Wotton, chair of the CMA inquiry put it: “Having considered all the evidence, the group does not provisionally believe that, in a dynamic and evolving sector, it is more likely than not that BT/EE will be able to use its position to damage competition or the interests of consumers.”
However, in theory the CMA decision makes it more likely that Ofcom, which is conducting a far-reaching inquiry into the broadband market, could order BT to spin off its Openreach subsidiary – something which rivals have demanded.
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