BT agrees to buy EE for £12.5 billion

BT has picked EE over O2 as its chosen mobile network -- but competition watchdogs may have something to say.

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BT has dismissed thoughts of buying O2 and is poised to buy EE for £12.5 billion, potentially catapulting the venerable company to the top of the telecoms tower -- if competition watchdogs let the deal through, that is.

BT has confirmed today that it is negotiations to buy EE from Deutsche Telekom and Orange. Pending the completion of due diligence and final negotiations, BT will become the owner of the UK's biggest mobile phone operator and will take charge of the most established 4G LTE network, potentially adding 24.5 million mobile customers.

Industry analyst Kester Mann of CCS Insight reckons this is the right move for BT, as EE is the "more desirable" of the two mobile suitors. And not just because of all those customers, either: "More importantly, this deal removes a converged rival from the market. Given that EE had multi-play aspirations of its own, BT will now face one fewer competitor."

BT's proposed dominance of both the mobile and fixed-line markets could worry watchdogs. As with all deals, the tie-up between BT and EE is subject to regulatory approval by competition authorities.

"We believe it is unlikely that Ofcom would block the deal," says Mann, "but the combined entity could be forced to dispose of some spectrum."

Execs from the European companies that own O2 and EE jetted into London this past week for negotiations. Having played the two sides off against each other, it seems BT has chosen EE to secure a strong mobile presence to round out its existing landline, broadband and TV services.

BT has been promising a return to the mobile market for some time, but things hotted up in the last fortnight as it emerged the company was considering snapping up either EE or O2. With landlines, broadband and TV already in place, an established mobile service leaves BT holding the full four media and telecoms services -- known in the industry as "quad-play".

"With its fixed-line and TV assets," Kester Mann told CNET recently, BT "could assume a very dominant position. Rivals such as TalkTalk, Virgin, Sky and Vodafone will be concerned."

EE was formed in 2009 by the merger of UK networks Orange, owned by France Telecom, and T-Mobile, owned by Deutsche Telekom. The two European companies have held a 50/50 stake in the combined network, but have recently made noises about the arrangement being a temporary one.

Ironically, today's loser O2 began life as a part of BT: co-founded by BT, Cellnet was one of the first British mobile networks back in 1985, along with Vodafone. Later renamed BT Cellnet, the network was split off to become O2 in 2002 and has been owned by Spanish giant Telefonica since 2005. Telefonica has publicly admitted that the trend towards quad-play has prompted the company to consider getting rid of O2.