So BT have finalised a deal for EE

We woke this morning to the news that BT had agreed terms to acquire EE.  I have to say that if feels that I am in some strange fantasy world rather than one that understands the massive risk such a deal is.

Those that make a living as public analysts have all been very quick to jump on the bandwagon that this is wonderful news.  I feel somewhat differently.

If I were a shareholder in Orange I have to ask just how owning shares in BT is going to fund purchases in France aimed at consolidation?  It is also difficult to see how DT can say it got a fair price for finally exiting the UK mobile market (they bought One-2-One for £8.4bn).

But lets look at just what BT have bought and how they are unlikely to be able to execute an strategy that offers a return on the investment.

BT back in the retail game.

Part of the "prize" for BT is the fact that they will take over the stores of EE and thus have a presence on the High Street through which they can upsell other services.  BT used to have retail stores that they closed because they could not make them work.  I do not think that they have significantly changed so that they can offer a presence where you can talk people into Quad play services. If they can sell Quad play then it will be on the basis of discounting rather than quality.  

What can BT do will all the 4G Spectrum?

In the 4G auctions BT purchased spectrum that it was going to used for fixed mobile services and now has spectrum refarmed and purchase by EE.  The regulator will have demands about forfeiture of some of the Spectrum. Whilst divisions other than BT Retail will have requirements for Mobile Spectrum of its own, can these be met by the new holding?

BT's ability to invest in Fibre

If BT can find the money to buy a Mobile asset then why can't it find the money to better roll out Fibre Broadband, is likely to be the simplistic view of politicians.  Thus demand that BT deals speedily in building out Fibre to the 50% of households not covered by Virgin's footprint will increase.  Alongside the calls for faster upgrades to the Fibre estate will be demands that they wholesale access prices fall.

Talent blackhole when it comes to Mobile

BT does not have the Executive experience required to manage a Mobile Operation and the Management at EE is unlikely to want to work for BT.  This means that once the deal closes they will face a mass exit of know how just at a time that they need to up skill. If they wish to stop that then they will be over paying, if they don't then they will discover just how complex managing the build and maintenance of a Mobile Network is.

Everything just got a lot more expensive for BT

Anyone with something to sell to BT has just seen that they are happy to pay top prices.  So in order to close any significant move they will discover that the price has just risen by 15-20%.  If they can spend £12.5bn for EE they must have the money for ...

BT Executives are in my experience very far from reality.  They might feel that they are offering the consumer an enhanced product range that they should be happy to pay for.  The reality is that for the last fifteen years telecommunications has been a commodity that the user demands at an ever decreasing price.  Look at the UK retail space and you see a blood bath, experienced hands like Tesco, M&S and Topshop are hurting an BT thinks that they can be successful. BT adverts for Broadband services may win awards and get people talking but they do not seem to get people signing up for service.  If you pay out £12.5bn how long can you offer BT Sport free of charge to your Consumers? What will the price be and how many will pay it?

Rather than telling the CEO and Chairman that they have struck an excellent deal if I would a significant shareholder I would be selling off my holding as it is unlikely that I will see an increase in dividends from helping Germany and France exit the UK Mobile market.

Consumer Choice?

With the fall of both Zavvi and Woolworths over the last months the UK consumer of music suffers even more than at any time since I have been buying it.  

I have no wish to have my listening dictated by the whim of a PR agent for the record companies.  The fact that the Christmas Number 1 has become the anointment of the X-Factor winner rather than a competition is only the tip of an iceberg.  The New Comers List for 2009 whist showcasing talent does not tell the whole story it is the will of the record labels who wish to launch the next Duffy, Kylie et al whilst promoting artists like Coldplay, Lily Allen etc..

I listen to Jazz mainly the artist that are available on iTunes are limited in terms of range and quality.  My local Zavvi whilst not a large stockiest of Jazz benefited from the fact that at times you could meet Courtney Pine as it was his local music shop.  I have managed to get the last three CDs he has released signed because of that fact.

This week I wanted to get a couple of CDs that were not yet available for download.  With only HMV as a specialist I was unlucky, WHSmith have yet to grasp the opportunity presented by the fall of rivals and Tesco stock just the top 50.  One CD was available as an import from Amazon at £16 the other you buy from the Artist's Website where an EP costs £12. So much for consumer choice.

Perhaps those that set up DarkerThanBlue can find some funding and relaunch the site as a music hub? I know that the important element of Woolworths failure was the removal of Entertainment UK who undertook the distribution of Music Games and Books and it is this decline that has hit consumers most.

How are others managing to get music outside of the Cities?  I hope that as small bookshops have been able to survive after the Net Book Agreement was removed we might see new music stores open.

Since Christmas I have taken advantage of the chain of Oxfam shops close to clients to replace a number of old music that I have on Tape with cheap CDs.  However not many of those that give music to Oxfam listen to Jazz. Before the rise of eBay we had local CD Warehouse that served the needs of those looking to buy and sell second hand CDs.  The company went bust but now it could return if others see the opportunity.