BT in talks with EE to create communications goliath

BT Group has confirmed that it is now holding ‘exclusive’ talks with EE and its owners Deutsche Telekom over a possible acquisition. British Telecom Group holds a large number of contracts within the UK and acts as one of the main providers of broadband, TV and phone services to UK households. The once nationalised company employs nearly 90,000 and made £18bn in revenue in 2013 – giving it a primary listing in the FTSE 100 Index.

The telecom giant has revealed, after speculation, that it is in talks to buy EE. EE is Britain’s largest mobile operator, valued at £12.5bn. Currently the talks are said to be ‘exclusive’ between BT and Deutsche Telekom – and will enable BT to carry out intense negotiations with the owners. BT hinted in November that it was going to buy either EE or O2.

“The proposed acquisition would enable BT to accelerate its existing mobility strategy,” said BT.

BT orchestrated a demerger of O2 from the group in 2001, then known as BT Callnet. The plans proposed now set it on a collision course with its once relative. In the deal made by BT, Deutsche Telekom and Orange (who have a stake in EE) would receive a 12% and 4% share in BT. Deutsche Telekom would also be able to appoint one member of the BT board.

If this deal turns out to be successful, it would make BT a goliath in the market. Creating a giant that covers fixed landline phones, broadband, mobile and TV. Over one third of the UK population make mobile calls through EE and its user base continues to grow. BT has said that owning EE will allow it to offer more of its services to more of the population, possibly tying services together in bundles.

Sir Harry Secombe with mobile phone : 1990

The competition within the mobile market has yet to make any comment. But be sure; Vodafone, O2, Virgin and Talk Talk will be watching with beady eyes. Clearly, the acquisition would make BT one of the biggest contenders in the arena. Literally, huge. Talk about market dominance. But it doesn’t just end there, the telecoms infrastructure BT would be running its mobile network through is owned by BT Wholesale. Which BT also owns.

The merger would be one of the biggest shake ups in the UK mobile market in recent years. It has the possibly to do either two things. Make the market more competitive and help reduce costs and dive investment. Or stifle competition and form the goliath we dread.