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BT/EE: Provisional Findings Report

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BT/EE: Provisional Findings Report Anticipated acquisition by BT Group plc of EE limited Provisional findings report Notified: 28 October 2015 © Crown copyright 2015 You may reuse this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-government- licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected]. The Competition and Markets Authority has excluded from this published version of the provisional findings report information which the inquiry group considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified information: considerations relevant to disclosure). The omissions are indicated by []. Some numbers have been replaced by a range. These are shown in square brackets. Non-sensitive wording is also indicated in square brackets. Contents Page Summary ................................................................................................................... 1 Provisional findings ............................................................................................... 16 1. The reference .................................................................................................... 16 2. Telecoms products, services and infrastructure ........................................... 18 Retail fixed voice ........................................................................................... 19 Retail fixed broadband ................................................................................... 19 Wholesale fixed voice and broadband inputs ................................................ 19 Mobile telecoms products and services .............................................................. 21 Retail mobile .................................................................................................. 21 Wholesale products and services in mobile telecoms ................................... 22 Telecoms revenue and volume metrics .............................................................. 23 Mobile connections ........................................................................................ 25 Pay TV ........................................................................................................... 26 Business telecoms ......................................................................................... 26 Overview of the UK telecoms infrastructure ........................................................ 26 Fixed broadband network topology ................................................................ 29 Mobile network infrastructure .............................................................................. 30 Light and full MVNOs ..................................................................................... 32 MNO network coverage and topology ........................................................... 32 Spectrum ....................................................................................................... 34 3. The companies and competitors ..................................................................... 36 BT ....................................................................................................................... 36 Activities ........................................................................................................ 36 Organisation .................................................................................................. 36 Financial performance ................................................................................... 37 EE ....................................................................................................................... 38 Activities ........................................................................................................ 38 Organisation .................................................................................................. 39 Financial performance ................................................................................... 40 Competitors ........................................................................................................ 40 Telefónica ...................................................................................................... 41 Vodafone ....................................................................................................... 41 H3G ............................................................................................................... 42 Sky ................................................................................................................ 43 TalkTalk ......................................................................................................... 43 Virgin Media................................................................................................... 44 CityFibre ........................................................................................................ 44 Zayo .............................................................................................................. 45 Network sharing agreements .............................................................................. 45 MBNL ............................................................................................................ 45 CTIL ............................................................................................................... 46 4. Regulation ......................................................................................................... 47 Overall regulatory framework .............................................................................. 47 Market review obligations ................................................................................... 48 The 2005 BT Undertakings ................................................................................. 50 Equivalence of Inputs .................................................................................... 50 Statement of Requirements/new products ..................................................... 51 Monitoring and enforcement .......................................................................... 51 Strategic Review of Digital Communications ................................................. 52 Ofcom’s dispute resolution powers ..................................................................... 53 Regulation of spectrum ....................................................................................... 53 Regulation of mobile backhaul (business connectivity) ....................................... 54 Regulation of Wholesale Local Access and Wholesale Broadband Access ....... 54 Current WLA regulation ................................................................................. 55 LLU ................................................................................................................ 56 Virtual unbundled local access (VULA) ......................................................... 56 Current WBA regulation ................................................................................. 57 Regulation of wholesale and retail mobile markets ............................................. 57 5. Trends in the industry ...................................................................................... 58 Demand for data ................................................................................................. 58 Fixed/mobile convergence and bundling ............................................................. 59 Fixed-mobile bundling ......................................................................................... 60 Over the top services .......................................................................................... 61 Spectrum and capacity constraints ..................................................................... 61 Consolidation ...................................................................................................... 65 6. The merger and relevant merger situation ..................................................... 69 Outline of the transaction .................................................................................... 69 The CMA’s investigation at phase 1 .................................................................... 70 Strategic rationale for the merger........................................................................ 70 BT rationale ................................................................................................... 70 DT rationale ................................................................................................... 72 EE rationale ................................................................................................... 73 Jurisdiction .......................................................................................................... 73 Enterprises ceasing to be distinct .................................................................. 74 Turnover test ................................................................................................. 74 Provisional conclusions on relevant merger situation .................................... 75 7. The counterfactual ............................................................................................ 76 BT presence in retail mobile services ................................................................
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