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BT to gobble EE for £12.5bn – BTEE phone home

Soz Telefonica, BT's gone for the other one for home, mobe, TV, web 4-way

+Comment BT is in talks to acquire EE for £12.5bn. BT had been eying up taking O2 from Telefonica.

The former national telco said on Monday that it expects "significant synergies" from absorbing EE, mainly through cuts "network and IT rationalisation, back-office consolidation and savings on procurement, marketing and sales costs".

BT said it will complete its due diligence work over the next few weeks before negotiations on a definitive agreement are concluded. It said the proposed acquisition will "enable BT to accelerate its existing mobility strategy" to "combine the power of fibre broadband, Wi-Fi and 4G."

BT added it will continue with its own plans for providing enhanced fixed-mobile converged services for businesses and consumers, in line with previous announcements.

Following the transaction, Deutsche Telekom would hold a 12 per cent stake in BT and would be entitled to appoint one member of the BT Board of Directors. Orange would hold a 4 per cent stake in BT.

The company also expects "revenue synergies" through selling fixed-line services to those EE customers who do not currently take a service from BT, and by accelerating the sale of converged fixed-mobile services to BT’s existing consumer and business customers.

EE has 24.5 million direct mobile customers and reported adjusted EBITDA of £1,588m for the 12 months to 30 June 2014. The deal would add an extra £6bn to BT's annual turnover of £18bn.

Comment by El Reg's Simon Rockman

The latest round of musical chairs in mobile network world has unmasked some hidden truths. Telefonica was never that keen on owning O2, and Orange and T-Mobile UK's parent Deutsche Telekom don’t like each other enough to want to carry on sharing EE.

If BT had chosen to go for O2, it would have had to extract itself from the MVNO deal it had with EE. The deal will allow BT to add the 2.6GHz 4G spectrum it bought during the 2011 auctions to EE's cellular network. There will still be four players in Blighty's mobile arena, so Ofcom is unlikely to want to look at reallocating the radio spectrum. There were brief rumours that Hutchison, owners of Three, was sniffing around EE, and that would have led to some reappraisal.

BT may now be able to deliver the seamless handover of calls from 3G to 4G/LTE it promised in a 2013 shareholder presentation – partly because voice-over-LTE (VoLTE) is now more mature, but mainly because it controls the whole network. The painful integration of the T-Mobile UK and Orange networks into EE is now pretty much complete.

The move to gobble up EE will have been heavily driven by wanting to shift to quad-play services: landline, mobile, TV packages, and broadband internet. Telefonica has said it doesn’t want to invest in a UK quad-play offering, and will now have to face off BT which has massive telephone, TV and internet offerings.

EE is a neater entity for BT to buy as it’s entirely a UK organisation. O2 has some overseas territories: Germany, Czech Republic and Slovakia, although it might have been sensible for these to have remained with the parent and been rebranded Telefonica. With the BT deal making the quad-play territory tougher for Telefonica, it may well hasten the sale of O2 UK. One name that may enter that fray is Liberty Global, which could see owning O2 as a way to ward off the attentions of Vodafone. ®

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