Ofcom sees no major regulatory problems with BT acquisition of EE

UK telecoms regulator Ofcom has submitted its report into the proposed BTEE acquisition and doesn’t anticipate any competition issues that can’t be dealt with through the standard regulatory channels.

The 69 page submission to the Competition and Markets Authority (CMA), refers to a number of stated competition concerns and gives Ofcom’s view on their legitimacy. It will be the CMA, not Ofcom, that decides whether or not to allow the BTEE deal to go through, but the CMA presumably considers Ofcom an important advisor, especially since it will need to take such an active role in keeping the combined company in check.

Here are the main areas of concern and Ofcom’s stance:

  • Retail mobile – Ofcom is happy with the current state of competition between four major MNOs. It notes that BT has its own 2.6 GHz spectrum, but also that it will struggle to commercialise it without its own national network. In summary BT is not currently a significant enough mobile player that its merger with EE would create competition concerns.
  • Wholesale mobile – From the report: “The merger may reduce the incentive for the merged entity to supply wholesale mobile services to fixed/mobile bundle MVNOs, as the impact of retail bundle customers substituting to the MVNO may be greater than it would be absent the merger. However, we note that MNOs already take account of a potential substitution effect when entering MVNO supply agreements.” In other words, no significant change.
  • Mobile backhaul – From the report: “We recognise that, as a vertically integrated firm, BT may have the incentive to discriminate in favour of its downstream divisions, and we impose regulation to address such concerns. We believe the current and future proposed regulation that we apply to BT will limit BT’s ability to discriminate over price, quality and innovation in the provision of leased lines.”
  • Fixed broadband – From the report: “It is difficult to be certain about the extent to which the BT/EE merger will increase the complexity of the current regulation. That said, Ofcom has extensive experience in cost modelling and applying regulation in complex environments. Therefore, we do not anticipate that any added complexity arising out of the merger would make our VULA margin regulation unworkable.”

The last two points effectively state that Ofcom reckons it can handle any changes to the market dynamics that are likely to be brought about by the BTEE acquisition, so there’s no need for the CMA to block it from a regulatory point of view. The CMA may have other concerns, but one of the biggest potential banana skins seems to have been removed.

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