A report on the anticipated acquisition by BT Group plc of EE Limited Appendices and glossary A: Terms of reference and conduct of the inquiry B: Industry background C: Financial performance of companies D: Regulation E: Transaction and merger rationale F: Retail mobile G: Spectrum, capacity, and speed H: Fixed-mobile bundles I: Wholesale mobile: total foreclosure – incentives analysis J: Wholesale mobile: partial foreclosure analysis K: Mobile backhaul: input foreclosure L: Retail fixed broadband: Market A M: Retail fixed broadband: superfast broadband Glossary APPENDIX A Terms of reference and conduct of the inquiry Terms of reference 1. In exercise of its duty under section 33(1) of the Enterprise Act 2002 (the Act) the Competition and Markets Authority (CMA) believes that it is or may be the case that: (a) arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation in that: (i) enterprises carried on by, or under the control of, BT Group plc will cease to be distinct from enterprises currently carried on by, or under the control of, EE Limited; and (ii) section 23(1)(b) of the Act is satisfied; and (b) the creation of that situation may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom (the UK) for goods or services, including the supply of: (i) wholesale access and call origination services to mobile virtual network operators; and (ii) fibre mobile backhaul services to mobile network operators. 2. Therefore, in exercise of its duty under section 33(1) of the Act, the CMA hereby makes a reference to its chair for the constitution of a group under Schedule 4 of the Enterprise and Regulatory Reform Act 2013 in order that the group may investigate and report on the following questions in accordance with section 36(1) of the Act: (a) whether arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and (b) if so, whether the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the UK for goods or services. Andrea Coscelli Executive Director, Markets and Mergers Competition and Markets Authority 9 June 2015 A1 Conduct of our inquiry 3. We published biographies on the members of the inquiry group on 19 June 2015. The administrative timetable for the inquiry was published on the case page on 30 June 2015. 4. We invited various third parties to comment on the merger and received 19 initial submissions from third parties. We also sent detailed questionnaires to competitors, customers and participants in the telecommunications market. In addition, we gathered oral evidence through undertaking hearings with selected third parties. Further evidence from third parties was obtained through telephone contact and additional written requests. Evidence provided to the CMA during phase 1 was also considered in phase 2. Non-confidential versions of the summaries of hearings with third parties were published on the case page. In response to publication of hearing summaries, we received three submissions providing additional comment. 5. Members of the inquiry group, accompanied by staff, visited BT’s head office, BT’s radio access network site at Baynard House and BT’s communication exchange at Faraday Building in London. They were also given presentations at these sites. 6. On 17 July 2015, we published an issues statement on the case page, setting out the main areas of concern upon which the inquiry would focus. We invited the main parties and third parties to comment on this and received nine submissions in response. 7. We received written evidence from BT and EE, which provided non- confidential main submissions. These submissions were published on the case page on 15 July 2015. We also held hearings with BT and EE on 18 August 2015 and 20 August 2015 respectively. 8. In the course of our inquiry we sent to BT, EE and other parties some working papers and/or extracts from those papers for comment including non- confidential extracts of the analysis prepared by Compass Lexecon for BT. 9. Our provisional findings were announced on 28 October 2015 and a non- confidential version of the provisional findings report was placed on the case page on 30 October 2015. We invited interested parties to comment on this and received 18 submissions in response (including 15 from third parties and two from members of the public). 10. We also announced an eight-week extension to the inquiry timetable to allow sufficient time to take full and proper account of submissions and the results of our investigation. A2 11. Two members disagreed with our provisional finding that the merger would be unlikely to result in an SLC in relation to the wholesale mobile market. We undertook further analysis, which is reflected in Chapter 14 of our final report, and also sought additional information from third parties. Based on a further assessment of all evidence and submissions in the round, all members were satisfied that an SLC in this market would not arise in relation to the provision of wholesale mobile services. The group’s decision was therefore unanimous in finding no SLC in relation to the wholesale mobile market or any of the markets reviewed. 12. After considering the responses to our provisional findings, we announced our final decision on 15 January 2016, and a non-confidential version of the final report was placed on the case page. 13. We would like to thank all those who have assisted in our inquiry. A3 APPENDIX B Industry background Introduction 1. This appendix covers background information on the telecoms industry and is structured as follows: (a) A brief overview of significant historic developments in the industry. (b) A discussion of telecoms industry metrics and industry trends. (c) The fixed telecoms network infrastructure and suppliers. (d) The mobile telecoms network infrastructure and suppliers. Significant historic developments in the UK telecoms industry 2. This section provides an overview of significant historic developments in the UK telecoms industry. Fixed-line sector 3. Significant industry developments include the following: (a) EE fixed broadband launched (1998).1 (b) BT launched broadband (2002). (c) Virgin Mobile merged with NTL:Telewest (2006) and was rebranded (2007) to form Virgin Media.2 (d) EE fixed voice launched (2007).3 (e) BT announced £1.5 billion superfast broadband roll-out (2008). (f) Virgin began upgrading network to 50 Mbit/s (2009). (g) Vodafone purchased Cable & Wireless Worldwide plc (CWW), (2012).4 1 Ofcom CMR (2015), p292. EE’s fixed broadband service was launched by its predecessor company Freeserve. 2 See Virgin Mobile UK / Virgin Media webpage. 3 EE’s fixed voice offer was launched by its predecessor company Orange. 4 See Vodafone press release (July 2012): Vodafone's Recommended Offer for Cable & Wireless Worldwide. B1 (h) Sky purchased Telefónica’s (O2 and BE brand) consumer fixed telephony and consumer fixed broadband business (2013).5 (i) Virgin Media purchased by Liberty Global (2013).6 (j) Virgin Media announced (2013) and commenced network upgrade to 152 Mbit/s (2014). (k) Virgin Media sold its off-net residential broadband customer base to TalkTalk (2014). (l) Virgin announced a £3 billion expansion project (known as ‘Project Lightning’) to extend its fibre network to approximately 4 million additional premises over five years (2015).7 (m) TalkTalk sold its off-net (non-LLU) residential broadband customer base to Fleur Telecom, part of Daisy Group (2015). Mobile sector 4. Significant industry developments include the following: (a) Virgin Mobile launched (1999).8 (b) 2.1GHz (‘3G’) spectrum auction (2000).9 (c) BT wireless renamed mmo2 and demerged from BT, subsequently renamed O2 plc (2001/02). (d) H3G launched in UK (2003). (e) Tesco Mobile launched (2003).10 (f) O2 purchased by Telefónica (2005). (g) Network sharing agreement created between T-Mobile and H3G (2007). 5 See O2 press release (March 2013): Sky to Acquire Telefónica UK's Broadband and Fixed-Line Telephony Business. 6 See Liberty Global press release (June 2013): Liberty Global Completes Acquisition of Virgin Media. 7 See Virgin Media press release (February 2015): Virgin Media and Liberty Global announce largest investment in UK’s internet infrastructure for more than a decade. 8 Virgin Mobile MVNO launched as a joint venture between Virgin and T-Mobile. See Virgin Mobile UK / Virgin Media webpage. 9 Ofcom (July 2015), Strategic Review of Digital Communications (SRDC), paragraph 4.47. 10 Tesco Mobile is a 50:50 joint venture between Tesco and Telefónica. B2 (h) Passive network sharing agreements created between Vodafone and O2 (2008 and 2009).11 (i) Orange and T-Mobile merged to form Everything Everywhere (2010),12 which was later rebranded as EE (2012). (j) TalkTalk mobile offer launched (2010). (k) EE 4G launched after Ofcom approved EE’s application to ‘refarm’ existing 1800 MHz spectrum to deliver 4G services (October 2012).13 (l) Active network sharing (Beacon) agreements created between Vodafone and O2 (2012).14 (m) 800MHz and 2.6GHz (‘4G’) spectrum auction completed (2013).15 (n) O2’s 4G licence included requirement to offer coverage to 98% of the UK population (when indoors) by 2017 at the latest (2013).16 (o) Mobile by Sainsbury’s launched (2013).17 (p) O2 launched 4G services (August 2013). (q) Vodafone launched 4G services (August 2013). (r) H3G launched 4G services in London (December 2013). (s) H3G national roll-out of 4G services (March 2014). (t) Sky announced plans to launch a mobile service with O2 (January 2015).18 (u) Dixons Carphone launched its ‘iD’ MVNO offer hosted by H3G 19 (May 2015).