BT expects price cuts in mobile market after buying EE

BT has warned shareholders that increased competition in the mobile telecoms market is expected to lead to further price cuts after it acquires EE, the largest operator in the UK.

A circular, sent out to shareholders on Wednesday ahead of a meeting to vote on the £12.5bn deal, sets out the arguments for the transaction. It says that EE will complement BT's long-term vision of a single data-centric network with no distinction between fixed and mobile services.

"Fixed-mobile converged products have seen strong take-up in a number of continental European markets to the benefit of consumers. BT expects there to be growing appetite for these products in the UK," it says.

The document also outlines the risks in the deal, which include the regulatory approval for the merger taking longer than expected, or being subject to stringent conditions or remedies.

BT has agreed with EE's owners, Deutsche Telekom and Orange, to complete the deal no later than August 2016, although the circular states that the deal should be finalised before the end of the UK telecom group's financial year in March next year. BT would need to pay a break fee of £250m to Deutsche Telekom and Orange should it try to pull out of the transaction.

The acquisition of EE will be vetted by the Competition and Markets Authority in the UK, which has already been gathering views from BT's rivals including Vodafone and TalkTalk.

Both are likely to push for further regulation of BT's fixed-line infrastructure, while Vodafone is also expected to lobby for EE to quit its network-sharing joint venture with Three, the mobile operator owned by Hutchison Whampoa.

BT said that the "failure of the joint venture to fully support EE's goals . . . may have an adverse effect on EE's . . . business". But it expects the acquisition to "generate considerable value for [BT] shareholders", with about £3.5bn of cost savings as well as £1.6bn revenue synergies.

BT can keep using the Orange and T-Mobile brands for several months after the deal completes - with the option to extend - for the "orderly wind-down and extraction of the brands from EE's business customers" before they transfer to BT brands.

The company has not said what it intends to do with the EE name in future, although most analysts expect mobile services to be brought under the BT banner. In the circular, BT says only that commercial savings will be generated from "simplifying digital platforms and the brand portfolio".

Deutsche Telekom will acquire a 12 per cent stake in BT as part of the deal, which it will not be able to increase for three years unless it seeks to acquire the 4 per cent stake that will be held by Orange. Deutsche Telekom cannot exceed 15 per cent, however.

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