October 23, 2014 / 7:10 PM / 5 years ago

UK telecoms market poised for more converged services, says EE director

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By Sophie Sassard, Gwénaëlle Barzic and Eric Auchard

LONDON/PARIS/FRANKFURT, Oct 23 (Reuters) - EE, Britain’s largest mobile network operator, is braced for the increasing convergence of mobile and fixed-line services in the UK market next 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 joint venture of Deutsche Telekom and France’s Orange SA , who in January this year stalled plans to list the UK company.

Operators offering a so-called multi-play package of mobile voice and data and fixed-line services including broadband, television and voice calls, is already mainstream in countries such as France and Spain.

“EE is positioning the different pieces to be a convergent operator, without, today, taking the next step, which is to do more by looking at potential combinations with fixed players,” Pellissier said.

The former chief financial officer of Orange and the company’s lead director at EE was speaking on a conference call held to discuss the French telecom giant’s quarterly results.

Currently the UK market remains split between mobile carriers EE, Telefonica’s O2, Vodafone Group and Hutchison Whampoa’s 3, and fixed-line players BT Group, the former monopoly which once owned O2, and broadband operators BSkyB and Liberty Media Corp’s Virgin Media.

Several fixed line companies already offer mobile services through other network operators but the industry is now waiting to see exactly what sort of converged service BT is planning to launch next year after signing a new deal a year ago to lease access to EE’s network.

“I think this (consolidation) is the second step, the second battle that will probably occur in our view in 2015,” Pellissier said, adding: “We think this is something in the air, but which has not started yet.”

BT PLANS

Banking sources have told Reuters that at least two of the top mobile operators in Britain would consider leaving the British 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 to re-enter the mobile phone market in the first half of next year with what he calls its “inside out” strategy.

This would combine in-home voice, media and data services with wireless roaming and wi-fi, relying on mobile and fixed-line assets it controls.

BT is assembling a hybrid mobile network made up of 4G radio spectrum which it already owns, a vast network of public wi-fi ‘hot spot’ routers which it can also use to handle voice calling and its capacity to offload wireless traffic onto its fixed line network. This would drastically cut roaming costs BT might pay to run its customer’s calls and data over other mobile networks.

The virtual network deal with EE merely acts as a backstop to ensure broader coverage in this scenario.

Industry sources estimate that BT’s cost per mobile subscriber will be less than 5 pounds a month per user. By contrast, the typical bundle in a mobile package in the UK market 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 another mobile operator, a BT spokesman said the company declined to comment on market speculation or rumour.

Meanwhile Vodafone appears to have other ideas about convergence in the UK.

In 2012 it acquired fixed line telecoms operator Cable & Wireless Worldwide, initially offering business customers a service 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 to say 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 winning distribution rights to video content to attract and keep subscribers rather than pursuing a more ambitious convergence of mobile with landlines. For example, BT has bought up TV sports rights in a major challenge to pay-TV provider BSkyB.

Barring a merger, there is widespread speculation that Orange and Deutsche Telekom would again consider a separate stock market listing for EE, an alternative that EE declines to comment on directly.

Deutsche Telekom also declined to comment.

But Ramon Fernandez, Orange’s chief financial officer played down the prospect of any immediate change in the ownership structure of the British joint venture, saying “the best option” for now was for Orange and Deutsche Telekom to maintain the current capital structure.

On Wednesday, EE reported strong customer demand for its faster 4G mobile service but said operating revenue, excluding the impact of regulatory changes, was flat. (Additional reporting by Paul Sandle in London and Leila Abboud in Paris; Editing by Greg Mahlich)

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