As Telefonica looks to sell its O2 UK outfit to Hutchison Three, it is also supporting two mobile virtual network operator (MVNO) deals which are adding to the quadplay mayhem of the UK market.
BSkyB and TalkTalk both have their virtual mobile services hosted by O2, and both will be harnessing these, while also investing in Wi-Fi, to defend themselves against the quadplay giant which will be created if BT is allowed to acquire EE.
TalkTalk on the move
TalkTalk, the smallest player in the game, reported its results this week and was crowing over record net additions, in its fiscal third quarter, across its all fledgling four-way services - broadband, mobile, fibre and TV. It added 15,000 new broadband customers and 50,000 mobile clients, as well as 88,000 for fibre broadband and 115,000 for TV. Perhaps its biggest achievement was to capture 11 per cent of the UK SIM-only mobile market, a better number than Vodafone, which has been hosting its MVNO.
It is now preparing an even stronger offering after signing up with Telefonica O2 for an MVNO deal to replace the Vodafone one, and also acquiring Tesco Broadband and blinkbox recently. But still this is a small company as operators go, despite its 4 million fixed broadband lines, and if it only keeps growing revenues by 4 per cent year-by-year, it won’t make much headway. That is almost certain to see it being more aggressive with mobile and Wi-Fi services, and looking for a merger of its own as the UK consolidates rapidly.
However, it should move quickly. Once the biggest of those M&A deals, between BT and EE, is completed (if that happens), the UK will look far less competitive than it does now in the quadplay area, and any further mergers might get tougher treatment from antitrust authorities. Even now, in one of the most competitive of all markets, the success of the BT/EE transaction, whose terms were made official this week, is not assured.
If it does get the green light, “the UK’s leading 4G network will dovetail with the UK’s fibre network,” as BT CEO Gavin Patterson put it as he announced the agreed terms of the agreement after the period of exclusive negotiations since BT decided to pursue EE rather than its other option, O2.
BT to pay £12.5bn for EE, regulators willing
Pending approval, BT will pay £12.5bn ($19bn), in cash and new shares, to buy EE from its current 50:50 parents, Deutsche Telekom and France Telecom. BT will get 31 million subscribers with EE, including 24.5 million direct mobile customers, 843,000 fixed broadband users and others supported via MVNOs. Patterson said: “This is a major milestone for BT as it will allow us to accelerate our mobility plans and increase our investment in them.”
Armed with these assets, and the UK’s largest 4G network, the telco is likely to intensify its quadplay efforts if it succeeds. In its statement, it said the transaction complements its “long term network vision to build a single, seamless, converged platform, supported by a single IP network, that is able to serve customers with no distinction between fixed and mobile”.
It has already launched bundles of telephone, TV, broadband and mobile services, via an MVNO agreement with EE. This will ease the transition if the acquisition is completed, since some of the work of defining and marketing new propositions will already have been done.
But, to make sense of replacing an MVNO alliance with a $19bn outlay, BT will look for considerable extra benefits. These are likely to entail deep integration of its wireline and wireless assets, once it has full control of them, both to reduce data delivery costs and support new services and customer experiences.
As large operators around Europe rush to build quadplays, they are looking beyond simple bundling, which is largely a defensive play in a highly competitive environment, offsetting the lower average revenue per user (ARPU) for individual services by gaining a higher share of total media and telecoms spend.
If their networks are integrated in the OSS/BSS and core, new services can be conceived, and subscribers can be monitored in greater depth for big data and marketing purposes. And if extensive hand-off is enabled between wireline, cellular and Wi-Fi (of which BT has large networks), operators can optimise their costs and customer experience with new levels of traffic management.
There may be other strategic benefits for BT, beyond its home shores. Deutsche Telekom is already talking about working more closely with its UK counterpart in the future. Under the terms of the deal, the German carrier will be left with a 12 per cent stake in the enlarged BT and one non-executive board member, while France Telecom will have a four per cent holding.
“The transaction is far more than just the creation of the leading integrated fixed and mobile network operator in Europe’s second largest economy,” said DT’s CEO Tim Höttges in a joint statement from the telcos. “We will be the largest individual shareholder in BT and are laying the foundations for our two companies to be able to work together in the future.”
Of course, BT still has to get approval from the UK Competition and Markets Authority, and possibly European agencies and will have to demonstrate that it will not have excessive market weight – with cast-iron guarantees that there will be no effect on its wholesale business, which provides wireline broadband and backhaul access to the other mobile players.
It is likely to emphasize the large number of quadplay competitors in the UK – Virgin Media, TalkTalk, BSkyB and Vodafone are all joining the race in various ways – and argue that its combined infrastructure will enable it to launch innovative new services for consumers.
As well as claiming it will have “greater scope for future investment and product innovation”, BT also said it aimed to achieve combined opex and capex synergies of around £360m a year by the fourth full year after completion, equivalent to a net present value of around £3.5bn before integration costs or around £3bn after them. It is also projecting revenue synergies from being able to sell full quad play bundles to a combined customer base, and estimates these will equate to a total net present value of approximately £1.6bn.
Meanwhile, EE’s CEO, Olaf Swantee - who has done much to revitalise EE after a rocky start to the joint venture, particularly with strong LTE performance – said: “Joining BT represents an exciting next stage for our company, customers, and people. In the last few years alone, we have built the UK’s biggest, fastest and best 4G network.”
Copyright © 2015, Wireless Watch
Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.