Consolidation a-go-go

BT in talks to buy EE for $20 billion

BT, the company once known as British Telecom, said on Monday that it is now exclusively negotiating a possible £12.5 billion ($19.6 billion) takeover of the mobile carrier EE, a joint venture of Germany’s Deutsche Telekom and France’s Orange.

BT and EE are now in a period of exclusivity that will last for “several weeks”, during which time BT will “complete its due diligence and for negotiations on a definitive agreement to be concluded.”

The former state telco had previously said that it was considering a purchase of either EE or O2, which is owned by Spain’s Telefonica. Since that revelation in late November, Three – the smallest U.K. mobile operator, owned by Hong Kong’s Hutchison Whampoa – was also reported to be contemplating a buy of EE or O2.

“The proposed acquisition would enable BT to accelerate its existing mobility strategy whereby customers will benefit from innovative, seamless services that combine the power of fibre broadband, wi-fi and 4G,” BT’s statement read. “BT would own the UK’s most advanced 4G network, giving it greater control in terms of future investment and product innovation.”#

According to the statement, the £12.5 billion would be a combination of cash and BT shares, which would leave Deutsche Telekom with a 12 percent stake in BT, and Orange with a 4 percent stake.

It will be interesting to see how this plays out with the regulators. BT is not currently a significant mobile player (it runs a virtual network that resells EE connectivity) so the buy would not in itself reduce the number of mobile carriers in the U.K., but if Hutchison went ahead with an O2 buy, that would bring the number of network operators down to three.

The new EU commissioner for the digital economy, Günther Oettinger, is quite keen on encouraging consolidation in the European telecoms sector, so as to create more powerful telcos that can better compete on the international stage.

“We firmly believe that convergence is the future of telecommunications in Europe. Customers want fixed-mobile converged services from a single provider,” Deutsche Telekom CFO and EE chairman Thomas Dannenfeldt said in a statement. “The proposed transaction with BT offers the chance to further develop our superbly positioned mobile business engagement in the UK and to take part in the outstanding opportunities of an integrated business model.”