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By Sophie Sassard, Gwénaëlle Barzic and Eric Auchard
LONDON/PARIS/FRANKFURT, Oct 23 (Reuters) - EE, Britain'slargest mobile network operator, is braced for the increasingconvergence of mobile and fixed-line services in the UK marketnext year and the pace of consolidation is likely to pick up,Gervais Pellissier, a lead director of EE, said on Thursday.
EE, formerly known as Everything Everywhere, is a jointventure of Deutsche Telekom and France's Orange SA, who in January this year stalled plans to list the UKcompany.
Operators offering a so-called multi-play package of mobilevoice and data and fixed-line services including broadband,television and voice calls, is already mainstream in countriessuch as France and Spain.
"EE is positioning the different pieces to be a convergentoperator, without, today, taking the next step, which is to domore by looking at potential combinations with fixed players,"Pellissier said.
The former chief financial officer of Orange and thecompany's lead director at EE was speaking on a conference callheld to discuss the French telecom giant's quarterly results.
Currently the UK market remains split between mobilecarriers EE, Telefonica's O2, Vodafone Group and Hutchison Whampoa's 3, and fixed-line players BTGroup, the former monopoly which once owned O2, andbroadband operators BSkyB and Liberty Media Corp's Virgin Media.
Several fixed line companies already offer mobile servicesthrough other network operators but the industry is now waitingto see exactly what sort of converged service BT is planning tolaunch next year after signing a new deal a year ago to leaseaccess to EE's network.
"I think this (consolidation) is the second step, the secondbattle that will probably occur in our view in 2015," Pellissiersaid, adding: "We think this is something in the air, but whichhas not started yet."
BT PLANS
Banking sources have told Reuters that at least two of thetop mobile operators in Britain would consider leaving theBritish market if only they could find a buyer or other options.
And they are pinning their hopes on BT becoming interested,the sources said.
Instead, BT appears to have other plans.
Chief Executive Gavin Patterson has said BT is set tore-enter the mobile phone market in the first half of next yearwith what he calls its "inside out" strategy.
This would combine in-home voice, media and data serviceswith wireless roaming and wi-fi, relying on mobile andfixed-line assets it controls.
BT is assembling a hybrid mobile network made up of 4G radiospectrum which it already owns, a vast network of public wi-fi'hot spot' routers which it can also use to handle voice callingand its capacity to offload wireless traffic onto its fixed linenetwork. This would drastically cut roaming costs BT might payto run its customer's calls and data over other mobile networks.
The virtual network deal with EE merely acts as a backstopto ensure broader coverage in this scenario.
Industry sources estimate that BT's cost per mobilesubscriber will be less than 5 pounds a month per user. Bycontrast, the typical bundle in a mobile package in the UKmarket currently runs to around 14 to 20 pounds.
"Everyone is terrified of what BT is going to do," an industry banker told Reuters last week. By undercutting prices"they could seriously do some damage," he said.
Asked whether it was considering buying EE or anothermobile operator, a BT spokesman said the company declined tocomment on market speculation or rumour.
Meanwhile Vodafone appears to have other ideas aboutconvergence in the UK.
In 2012 it acquired fixed line telecoms operator Cable &Wireless Worldwide, initially offering business customers aservice in Britain that combines mobile phone and data services.That has yet to expand into consumer markets.
A Vodafone spokesman declined to comment.
MERGERS OR NOT
Pellissier said EE has no active merger talks underway."Today, nobody has been coming to us from the fixed players tosay we are looking for a combination, neither the incumbent (BT)nor the big cable operator (Virgin Media) nor the smaller guys,"he said, adding: "I think it is not on their agenda today."
Instead, British players have focused on winningdistribution rights to video content to attract and keepsubscribers rather than pursuing a more ambitious convergence ofmobile with landlines. For example, BT has bought up TV sportsrights in a major challenge to pay-TV provider BSkyB.
Barring a merger, there is widespread speculation thatOrange and Deutsche Telekom would again consider a separatestock market listing for EE, an alternative that EE declines tocomment on directly.
Deutsche Telekom also declined to comment.
But Ramon Fernandez, Orange's chief financial officer playeddown the prospect of any immediate change in the ownershipstructure of the British joint venture, saying "the best option"for now was for Orange and Deutsche Telekom to maintain thecurrent capital structure.
On Wednesday, EE reported strong customer demand for itsfaster 4G mobile service but said operating revenue, excludingthe impact of regulatory changes, was flat. (Additional reporting by Paul Sandle in London and Leila Abboudin Paris; Editing by Greg Mahlich)
