BT agrees to buy mobile operator EE for £12.5bn

BT believes it can generate an additional £1.6bn a year in sales thanks to huge deal

BT has agreed to buy the UK's largest mobile operator EE in a cash and shares deal worth £12.5b.

The deal will be partly financed by a £1bn share issue, and following the transaction EE's current owners Deutsche Telekom and Orange will hold stakes of 12 per cent and four per cent in BT, with Deutsche being entitled to a seat on the UK telecoms giant's board. As part of the deal, Orange and Deutsche Telekom will sell 100 per cent of their EE shares.

EE, previously Everything Everywhere, was formed by the merger of T-Mobile and Orange, and has about 24.5 million subscribers - ahead of Vodafone in second place with 19.5 million.

BT had announced in December that it was in talks to buy EE, after having previously considered the re-purchase of O2 from Telefonica, who bought the company from BT in 2005.

This isn't the first time since the sale of O2 that BT has been interested in re-entering the mobile market. Back in 2012, the company suggested to Computing that it could bid for spectrum at the 4G auction. Eventually, only a subsidiary of BT Group, dubbed Niche Spectrum Ventures, ended up bidding and winning spectrum at the auction.

As a consequence of the deal, BT will now sell its services to its combined customer base, offering broadband, fixed line, pay-TV services and mobile services in a ‘quad-play' package. The firm said that within four years, the deal will be saving it £360m a year in operating costs and capital investment. It believes the deal could enable it to generate an additional £1.6bn a year in sales.

BT chief executive Gavin Patterson said that the acquisition of EE was a "major milestone for BT as it will allow us to accelerate our mobility plans and increase our investment in them".

BT's purchase has had a knock-on effect in the telecoms market; Telefonica has announced that it would be selling O2 to Hutchison Whampoa, which owns rival mobile operator Three, for as much as £10.25bn, while BT's pay-TV rival Sky has signed a deal with O2 to offer mobile phone services to UK customers in a wholesale contract. BT will therefore be behind Three in terms of overall numbers of subscribers after its purchase of O2.

BT admitted that it too was looking at a wholesale deal with EE but said that the takeover offered "far more control of our own destiny".

BT chief executive Gavin Patterson said he expected the transaction to be passed by European competition regulators. He believes that there was still a competitive number of mobile networks available in the UK, and that it was consistent with competition across Europe, where telecoms firms offered both fixed and mobile operations.

According to Patterson, EE's 580 high-street stores would initially be kept under the EE brand, but he said that this is something BT will consider in more detail when the takeover is completed.

He said that the deal would not affect BT's plans to bid in the multi-billion pound Premier League rights auction as it continues to battle with Sky in the pay-TV arena.

The telecoms giant's shares rose more than 2.5 per cent on the London market.