London: The last time BT’s shares were trading this high was 14 years ago. Tellingly, that was also the last time BT had a mobile telephony business, having been then forced to exit the market when it spun off the mobile business it built from scratch.

The decision to enter into exclusive talks with Orange and Deutsche Telekom to buy EE for £12.5 billion will turn the clock back to when BT was still emerging from being a national monopoly with both a dominant consumer telecoms business and ownership of the national telecoms infrastructure.

It was not meant to happen this way. BT had ambitious plans to create its own mobile network using its home broadband hubs to undercut the big mobile networks. But just months before the launch of its own plans, BT has instead decided to join their ranks by buying an existing player to create a telecoms group of formidable strength in the UK market.

In doing so, BT has acknowledged the importance of being able to offer “quadplay”. These bundled packages, include landline and mobile contracts as well as broadband and television, and are increasingly popular in many parts of Europe and in the US.

Telecoms companies want to own all means of content delivery over the internet — whether it be via a mobile phone, a tablet, a PC or a set-top box in the corner of the living room. This has underpinned a frantic round of merger and acquisitions across global telecoms and media sector.

BT and EE are a good fit, given that both companies have trumpeted their superfast mobile and home broadband services. Together, the companies will be able to offer customers access to fast internet services in the home and on the move.

But the decision is still remarkable for BT, whose transformation since Gavin Patterson took over as chief executive two years ago has been as rapid as it has been profound.

Thirteen years after it was forced to spin off its Cellnet mobile business under pressure from shareholders concerned about the group’s high debt levels, BT has returned to the market with some pomp, sporting a streamlined organisation, a healthier balance sheet, shareholder goodwill and an exciting sideline in TV, led by its rights to broadcast Premier League football.

Shareholders have given BT’s management all the encouragement it needs to close the largest transaction in its history. Shares rose more than 5 per cent after news of the deal broke a few weeks ago.

BT will be able to provide innovative packages of TV and telecoms that could reshape how people buy their communications services in the UK. For example, BT Sport could be offered with no data charges, or even exclusive access, on an iPad or smartphone.

“The company’s interest in buying a mobile network operator illustrates its strong ambitions in multiplay and should serve as a clear warning to UK rivals,” said analysts at CCS Insight. “After a slow start, the UK market is rapidly evolving toward multiplay and we caution over the future of pure-play mobile providers such as Three and O2.”

The decision to buy a mobile business will also reduce BT’s reliance on earnings from Openreach, the infrastructure arm of the company. Analysts said the deal will turn the unregulated consumer access and content business into more than half the enterprise value of the group.

The deal also provides BT with a new story to tell investors and an opportunity to reset market expectations over future earnings. There were signs that growth in its core superfast broadband business was slowing in the last quarter, while its TV business — for all the noise and fanfare — has not seen spectacular growth.

However, there are also some problems ahead, not least the need for network investment as EE has aimed to provide 4G services to 98 per cent of the country within the next few years.

More worrying for analysts is how BT will price its mobile services. Prices are generally decreasing — a fact that would only be hastened by any discounted bundling by BT as it seeks to maintain the premium around its broadband products.

BT may feel the need to try to keep mobile prices higher as a result to protect revenues from the large mobile base. This could be a struggle in a market with cut-price offers from rivals such as Three and TalkTalk.

The regulators will also face a difficult job deciding the deal will make BT too dominant in the telecoms market. The group will have no greater market share in a single sector but the regulator may want to consider the broader context if BT can cross-subsidise various services to the detriment of competitors.

Rivals such as Vodafone and TalkTalk will push heavily for price reductions for access to the group’s fixed line broadband network — and potentially could argue the case for a split of BT’s Openreach infrastructure arm entirely.

“It is unlikely that Ofcom would block the deal, but the combined entity could be forced to dispose of some spectrum,” said Paolo Pescatore, director at CCS Insight. “The regulator could also mandate the demerger of either of both of BT’s Openreach and Wholesale units.”

BT expects synergies through network and IT rationalisation and back-office consolidation but analysts say that the lack of market overlap inhibits the benefits.

But the biggest problem could be what the deal will do to BT’s rivals, which are already looking at potential acquisitions of their own. Bigger, more integrated rivals could end up hurting BT more than it will help itself by buying EE.

Regardless, it will not be enough to deter the company. The deal will bring BT back in line with peers on the continent. The company has gone back to the future with its acquisition of EE — but this time it hopes that it can avoid making the same mistakes of a decade ago.

— Financial Times