Industry analysts have broadly welcomed the news that BT has entered into exclusive negotiations with EE’s owners over a potential sale of the 4G market leader.

Deutsche Telekom and Orange confirmed on Monday that they were discussing taking minority stakes in BT as part of a £12.5 billion deal.

The announcement leaves Telefónica, which is also keen to sell its UK mobile arm to BT, out in the cold.

CCS Insight Analyst Paolo Pescatore said: “We consider EE to be a more desirable asset for BT to own than O2 and thus view its move as a major statement of intent regarding its multi-play aspirations.”

Analysys Mason’s Rupert Wood added: “On the whole we think BT has made the right choice due to [EE’s] large 4G subscriber base and better network in terms of coverage and capacity. Network is still a clear differentiator.”

Alongside EE’s market-leading position in 4G LTE and the opportunity for BT to cross-sell fixed-line services to EE’s mobile customers, the deal would remove a converged rival from the market.

“Given that EE had multi-play aspirations of its own, BT will now face one fewer competitor,” Pescatore said.

Ovum analysts Matt Howett and James Robinson added: “The firms are largely complimentary as the UK market moves towards quad-play.

“The move would reduce a quad-play rival in the UK, but EE’s TV service has only been launched recently, so competition would not be damaged in practical terms.”

Clearly, regulation is one hurdle to be overcome should a deal be agreed. Will it get the go ahead?

“A combined BT/EE would be in a similar position to the vast majority of incumbents in Europe ie, number one in broadband and number one in mobile,” said Wood.

“On the face of it, things look promising and the green light is likely to be given, albeit with some concessions,” agreed Howett and Robinson.

“Recent remedies imposed in Germany and Ireland came about because the number of mobile operators was being reduced, however this transaction preserves a four player market in the UK.”

The Germany and Ireland deals involved several spectrum concessions.

Should the same happen in the UK, O2 and Three could be interested in acquiring BT’s 2.6GHz spectrum as they currently don’t have anything in that band, said Howett and Robinson.

Wood added: “There is a consultation out now on an auction for 2.3GHz and 3.4GHz in about a year and the competition assessment there proposes to raise the spectrum cap from 2x105Mhz proportionally to the new spectrum on offer.

“Ofcom might take the view that this approach remains valid, and higher 2.6GHz holdings will mean a more stringent cap on how much new spectrum can be acquired by BT/EE at the next auction.

“Alternatively, some other body (EC or CMA) might say that some 2.6GHz needs to be divested and Ofcom may offer to incorporate this in a future auction. There is no certainty here.”

According to Pescatore, there are other options open to the regulatory bodies: “They could also mandate the demerger of either of both of BT’s Openreach and Wholesale units.”

Other potential hurdles also loom on the horizon.

“EE is owned by two companies that haven’t always agreed unanimously on strategy for EE – this could make the deal more time-consuming to complete,” Pescatore said.

“EE is also still in the process of consolidating a complicated mix of networks, brands and back-office systems. The deal to buy O2 wouldn’t have involved this level of complexity.”

Howett and Robinson warn a deal could affect BT’s ability to compete in other key area: “It may restrict its ability to bid for games in the football rights auction, which has just begun.”

More widely, a BT-EE tie-up could see a further shake-up of the UK market.

Pescatore said: “As the only pure-play mobile operators remaining in the UK, Three and O2 could become vulnerable if consumers embrace multi-play. BT’s move opens the market up for further potential consolidation involving these companies.”

According to Howett and Robinson, O2 is likely to be the biggest loser should the move be successful.

“Telefónica has made it clear that it was interested in exiting the UK and it could now struggle commercially against its convergent rivals BT, Virgin and Vodafone.

“From the wireline perspective Sky and TalkTalk may also be marginalised if quad-play proves successful, although they have not made such public proclamations as O2 to exit the market.”

But Wood warned: “Unpicking network sharing arrangements would be tricky. For Telefónica, O2 will be worth less now that BT are apparently out of the equation.”

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