BT has struck a deal to buy mobile network EE just a fortnight after confirming it was in talks with the shareholders of both it and O2 about a possible acquisition.
EE, which has 24.5m direct mobile customers, was formed in 2010 after Deutsche Telekom, owners of of T-Mobile, and Orange agreed to merge their UK operations.
In addition to mobile phone services, EE also offers home broadband and a newly launched TV service.
BT’s shareholding in rival YouView, which powers its own TV service, casts doubt on the future of EE’s TV offering if the sale goes ahead.
Today’s announcement brings BT’s long expected re-entry into the consumer mobile market, originally due to be powered by a virtual network deal with EE, one stop closer.
BT already provides mobile services, including a hybrid landline and mobile service, to business customers via EE’s network.
In 2001 a heavily indebted BT spun-off O2, then called BT Cellnet, to help raise much needed funds. The company was later bought by Spain’s Telefónica.
That decision, while helpful to the firm’s short-term financial position, means it has failed to benefit from the growing use of mobile voice and data services.
According to media and telecoms regulator Ofcom, 16% of UK adults live in a mobile-only home – all representing lost income both to BT’s residential division and its wholesale arm Openreach which makes money when an end user signs up with a rival phone and broadband provider.
Adding mobile to its line-up of products could allow BT to shake up the market by offering discounted bundles to customers who take its home phone, broadband, TV and mobile services.
Rival operators have been paying close attention to BT’s mobile plans, fearing its original virtual network service would be used to drastically undercut prices.
As an alternative to a straight price war, the ISP and broadcaster could choose to bundle access to its BT Sport channels to new and renewing mobile customers similar to the offer it makes home broadband customers.
The deal also promises to give BT a national presence on the high street which, in additional to continuing selling mobile services, would allow it to demonstrate its TV services and other products to prospective buyers.
In a statement BT confirmed it was entering into an exclusivity agreement with Deutsche Telekom and Orange to finalise a deal.
If the purchase goes ahead, BT will pay £12.5bn comprising cash and new BT ordinary shares issued to both EE shareholders.
The deal would see Deutsche Telekom hold a 12% stake in BT and gain the right to appoint one member of the BT Board, while Orange would hold a 4% stake in the UK firm.
BT says it has remained “mindful of the importance of maintaining a conservative financial profile” while constructing the deal.
It added that it expects to make “significant” synergies through network, IT and back-office rationalisation and by making savings on procurement, marketing and sales costs.
It also expects to grow customer revenues by selling additional products to 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.
Commenting on today’s announcement, Imran Choudhary, senior analyst at Kantar Worldpanel said: “Acquiring EE would give BT instant access to roughly one in three mobile customers in the UK who already use the EE network.
“BT already has an agreement with EE to use part of its network, so buying the whole network would provide a strong platform for BT to lead the telecommunications sector in the UK. Consumers should see some real benefits as others follow its lead with quadplay offers.
“Moving into the mobile market is a must for BT to defend its premium services which are increasingly threatened as other players enhance their triple and quad play offerings.”