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By Paul Sandle
LONDON, Jan 29 (Reuters) - BT Group completes theacquisition of the country's biggest mobile network operator EEon Friday, opening the way to creating a single integratednetwork offering a combination of telecoms and TV services thatcompetitors are scrabbling to match.
Regulators waved through the deal, reasoning the littleoverlap between BT's fixed lines and EE's mobile network meantlow risk to competition.
But the former national network monopoly still faces onemore hurdle to clear before it can realise its stated plan tooperate a single network, "that is able to service customerswith no distinction between fixed and mobile".
Industry regulator Ofcom is currently looking at whether toforce BT to spin-off its fixed line network arm Openreach afterrivals who rely on the network as wholesale customers said BT'sownership was hampering competition and investment in connectingthe whole country up to high speed broadband.
BT, which says a break-up would not improve competition orinvestment in the network, is expected to comment on its plansfor EE when it reports results on Monday, but analysts are notexpecting fireworks, at least not until the fate of Openreachbecomes clearer when Ofcom reports back on the findings of itsreview next month.
"There's a whole bunch of regulatory issues pending, andBT's rivals are willing to jump on any bandwagon to punch themon the nose," said an analyst who didn't want to be named.
"So I don't think you'll hear anything concrete, it's a caseof trying to read between the lines."
Analysts predict the regulator will not force BT to hive offOpenreach, and Ed Vaizey, the minister responsible for thedigital economy, is a sceptical about the merits of a split.
But rivals TalkTalk, Sky and Vodafone are keeping up the pressure, while a recent report fromlawmakers kept the option alive politically.
BT bought EE, a joint venture between Deutsche Telekom and France's Orange, to serve customersincreasingly taking fixed and mobile services from one provider.
"Moving into the mobile market is a must for BT to defendits premium services, which are increasingly threatened as otherplayers enhance their triple and quad play offerings," saidImran Choudhary, senior analyst at Kantar Worldpanel.
BT had started its own mobile service, using EE's network,but it will now have access to one in three mobile customers.
MOBILE SOCCER
Analyst John Karidis at Haitong Securities said BT could usecontent from BT Sports, which has live TV rights to ChampionsLeague and some Premier League soccer games, to boost averagemobile revenue and in the business market thinks BT will help EEcompete much better against the still dominant Vodafone and O2.
BT will also be able to use EE's more than 500 stores tosell its products, although that is not expected to happen untilit is sure the customer proposition is right.
Choudhary said BT's rivals who are weaker in content or intelecoms services should be worried.
"Virgin, TalkTalk and Vodafone made the loudest noises interms of issuing complaints through the regulatory process, andthat doesn't surprise me," he said.
Cable network operator Virgin Media and TalkTalkboth offer a mobile service, but Virgin's take-up was only 6percent of its base, he said, while TalkTalk competed at thelow-cost, budget end of the market.
Meanwhile analyst Jerry Dellis at Jefferies said Vodafonewould find itself exposed as a "mobile-only player in a markethurtling towards quad-play".
Vodafone was on the wrong side of a new divide, lacking thepowerful bundling capabilities of BT, Sky and Virgin Media."Merging with Virgin Media would be the convincing response," hesaid in a note this week.
The two companies abandoned talks about a swap of assetslast year, although sources said the door was not closed to morediscussions in future.
Pay-TV company Sky and TalkTalk, however, could benefit fromthe other big shift in the mobile market - the takeover by CKHutchison's Three of Telefonica's O2 UK.
Because the deal would reduce the number of UK mobilenetwork operators from four to three analysts expect theregulators will want concessions in return for approval toprotect competition, such as selling airwaves or offeringwholesale access on better terms.
That would be good news for Sky, which is launching itsmobile services on O2's network in the summer, and TalkTalk,which already uses the network for its mobile offer.
Macquarie Group said it could make Sky the kingmaker in UKmobile.
"Sky is in a strong position with strategic flexibility inthe UK as its competitors suffer distractions such as BT'sintegration of EE and has multiple options for its mobilestrategy," said Macquarie analyst Guy Peddy. (Editing by Greg Mahlich)
