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.

Will the real BT stand up?

Over the weekend I read three stories about BT which paint a confused view of just what it's future might be. On Saturday the Guardian reported that thanks to BT TV complaints have shoot up. The Yesterday's Sunday Times had two stories in the Business Section about the return of BT Mobile and a feature on NEW CEO Gavin Patterson's £2bn bet on sports TV.

If you read on paper you get the view that BT's retail strategy is in need of a major review. The customers are unhappy with the failings of not just it's TV product but also it's Broadband product. The only provider that gets more complaints for it's Broadband is EE.

Read the Sunday Times and all is good for BT it's about to get back in the Mobile Phone business after leaving in 2001 and BT TV has seen 3M on Virgin and Sky take the service. Then a full page feature on new CEO Gavin Paterson and his £2bn bet on sports TV is a bold gamble that aims to grow the business after a period of cost cutting. He will use a Quad Play offer to drive up incomes having bought some 4G spectrum and struct an MVNO deal with EE.

The problem is that Simon Duke in the Sunday Times does not seem to understand that BT has had MVNO agreements with O2 and Vodafone ever since it sold of it's mobile arm after over paying for 3G spectrum in 2000. He also does not seem to understand that since 2008 BT has failed to invest the money need to provide the long term upgrade in super-fast fibre to the curb rather than cabinet just as it failed to match European spending in ADSL deployment ten years previously.

When you start to understand that last week OFCOM reported that the UK has the lowest consumer prices for Mobile services in Europe you start to ask it's not just Duke that fails to understand the realities of a very competitive telecoms market but BT also.  For too long the Company thinks that one of its prime roles is to defend itself against the regulator rather than invest in it's Network so that it survives long term.