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British Telecom buys EE for £12bn

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BT Group has finalised a £12.5bn deal to buy EE, the UK’s largest mobile phone network, after weeks of negotiations.

The purchase will reaffirm British Telecom’s status as the dominant force in UK telecoms, merging its mobile 4G network with EE’s telecoms and broadband network (the UK’s largest). At present, EE has 31 million customers, and the largest 4G customer base of any operator in Europe.

The move represents the culmination of prolonged efforts by BT to re-enter the mobile market, having offloaded its mobile division in 2001 (and creating O2 in the process). The ‘demerger’ has been condemned by some as a costly corporate blunder and BT management have since been focused on trying to correct it.

Under the terms of the deal, BT will pay EE owners Deutsche Telekom and Orange a combination of cash and shares. Deutsche Telekom will be left with a 12 per cent stake in BT, while Orange will hold a 4 per cent stake. One non-executive member of BT’s board will also be appointed by Deutsche Telekom.

BT expects the combination of the two companies to result in £360m of annual savings in the fourth full year after the deal completes, which is expected to be before the end of BT’s 2015/16 financial year on 31 March 2016.

Gavin Patterson, BT’s chief executive, heralded the deal as a “major milestone” for the company, which would accelerate its foothold in the mobile market. He promised that “consumers and businesses will benefit from new products and services, as well as from increased investment and innovation.”

Olaf Swantee, EE chief executive, said that the move “will ensure the UK remains at the forefront of the mobile revolution, bringing even more innovation and investment in world leading connectivity for our customers.”

However, reaction from rivals was less positive. Vittorio Colao, chief executive of Vodafone, said the deal must be policed stringently by regulators, to curb the threat of monopolisation. “BT will have to behave very well,” Colao warned. “As soon as the incumbent becomes such a large player in all parts of the market the temptation to become restrictive is high. Exclusivity and lack of access to content could suffocate the market. The potential for BT to squeeze margins for their competitors is very tempting.”

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