News: BT confirms it will retain the EE brand.
Ofcom has weighed into the mobile merger debate with an intervention that will increase the pressure on Hutchinson Whampoa’s plans to acquire Telefonica’s O2 network as BT’s acquisition of EE approaches completion.
The CEO of Ofcom, Sharon White, claimed that the deal could increase prices for consumers and businesses.
"Competition is the lifeblood of today’s telecoms market, spurring innovation, better coverage and fair prices," she wrote in the Financial Times.
White wrote that Ofcom’s aim was to "maintain…progress through competition".
"So we are concerned that the smallest mobile network, Three proposes to become the biggest by acquiring its rival, O2. The combined group would control more than four in 10 mobile connections," she wrote.
White cited the example of the Austrian market, in which the regulator claims prices have risen 15 percent overall and 30 percent for customers who only make calls and send texts.
She also raised concerns over the effect it would have on network infrastructure; the operators have combined their physical infrastructure into two networks, one shared by EE and Three and the other by O2 and Vodafone, in an arrangement Ofcom believes is effective.
In addition, she claimed that the deal would skew the balance of power away from independent high street retailers.
Kester Mann, Principal Analyst at CCS Insight, said: "Hutchison should be prepared for a testing week as the European Commission is likely to release its "Statement of Objections" to the deal within the next few days. A similar publication concerning the planned merger in Denmark between Telenor and TeliaSonera in 2015 ultimately proved a pre-cursor to its collapse.
"Competition chief Margrethe Vestager argues that mobile tariffs could rise and investment and innovation in the sector will be reduced. Indeed, Three has brought a number of novel initiatives to the UK market such as free roaming and inclusive 4G. Buying O2 could mean that it has less incentive to continue its role as market disruptor.
"A major focus area of the Commission’s investigation is likely to have been around the UK’s vibrant MVNO market. It is keen to prevent the reduction in potential partner networks harming the prospects for virtual providers."
While the decision is being made by the European Commission for Competition, Ofcom’s intervention will be considered carefully.
It comes as BT reveals how it will be structured after it buys out EE, currently the UK’s largest mobile operator, in a deal that has proven far less controversial than the O2 and Three deal. It was cleared by the CMA in mid-January 2016.
The company will be split into six lines of business: Consumer, EE, Business and Public Sector, Global Services, Wholesale and Venture and Openreach.
BT emphasised that Openreach would be unaffected by the reorganisation and would continue to operate "at arm’s length" from BT.
BT Consumer will continue largely as it has done, as will most of Global Services. The EE brand will be retained, focusing largely on the consumer market and offering mobile, broadband and TV, although the CEO Olaf Swantee will be replaced with Marc Allera.
BT confirmed that the BT Mobile brand will continue to co-exist with EE.
Business and Public Sector is a new division comprised of EE’s business division and UK-focused parts of BT Global Services. The Wholesale and Ventures division, which sells to other communication providers, will be expanded to include EE’s MVNO business.
All divisions will be supported by Technology, Service and Operations, which runs BT’s core networks.
The news comes as BT announces revenue of £4.594 billion, a 3 percent year-on-year increase, and pre-tax profit of £862 million, up 24 percent, for its Q3.