BT returns to mobile phones with £12.5bn takeover of EE

Companies believe consumers will increasingly want to buy one package covering all four services

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BT is set to re-enter the mobile phone market for the first time in more than a decade after finalising its takeover of the UK’s biggest network, EE, in a £12.5bn deal last night.

The two sides have been holding exclusive talks for several weeks, but it is understood that details of the sale have now been agreed and it could be made official as early as today.

EE’s owners, Deutsche Telekom and Orange, have been in discussions with BT since December and are happy to offload the business, while BT made it clear recently that it wanted to re-enter the mobile phone market. It exited the industry with the spin-off of BT Cellnet, which later became O2, in 2001.

The deal will add to the pressure on the other major TV, broadband and mobile networks in the UK to join together as the sector shifts towards only a few giant businesses.

O2’s owner, Telefonica of Spain, is already in discussions with Three, owned by Hutchison Whampoa, while Sky and Vodafone are also looking to have a hand in the so-called “quad play” areas of TV, broadband and fixed and mobile phone lines.

Companies believe consumers will increasingly want to buy one package covering all four services, rather than sign up via a handful of different companies.

The current round of merger talks started last year with BT holding initial talks with O2 before it switched its attentions to the operator’s larger rival, EE, and entered exclusive talks with its French and German owners at the end of last year.

Sky agreed a deal with Telefonica last week to offer quad play bundles with O2 from 2016, while BT said previously that its strategy for buying EE went beyond quad play to create a single “converged” platform.

BT is not expected to face significant regulatory investigations into the takeover, especially because its fibre optic and copper cable network, which carries mobile traffic for rivals, is already closely regulated by Ofcom.

There had previously been calls for Ofcom to intervene over the wholesale price BT charges rivals to access the lines, to avoid creating a market-dominant position.

Critics have argued that with BT allowed to charge any price to competitors – with the profits used to upgrade the network – it could win more customers by cutting prices too aggressively.

EE brings to the BT fold 24 million UK customers, the largest holding of spectrum used for mobile services, and the most developed 4G network in the country.

The deal will be funded with £6.3bn in shares in the combined group, and about £6.2bn in cash, expected to be raised through a rights issue.

Deutsche Telekom will have a 12 per cent stake in the enlarged company, with Orange holding about 4 per cent. Both companies are part-owned by their respective national governments, meaning the formerly state-owned BT will be part-owned by the German and French governments.

Both EE and BT declined to comment last night.

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