After a flurry of rumours, speculation and deals during the first few months of this year, the last few weeks have been relatively quiet forVodafone(LSE: VOD) andBT(LSE: BT-A).
But theres plenty going on behind the scenes at these two companies, although it may not seem like it at first glance
Fighting for market share
BT is currently trying to convince regulators that it should be allowed to acquire mobile network provider EE.
This, it seems, is a full-time job.
BTs peers,TalkTalk,Vodafone andSky, have all attacked the deal, complaining to regulators that it will stifle competition and lead to higher prices for customers. Additionally, the Competition and Markets Authority has already flagged the prospect of a substantial lessening of competition in the telecoms markets following the deal.
BT has issued a rebuttal, claiming that the merger will create a digital champion for the UK.
Still, regulators are not convinced, and theyre also concerned about other parts of BT. For example, BTs dominance of the UKs broadband infrastructure and fixed-line telecoms market has drawn the criticism of Sky, which has asked regulators to open an investigation into BT.
BT provides broadband access to around 80% of UK homes, so there is a strong argument here. Moreover, smaller peers in the broadband market are trying tobeat BT at its own game, targeting places where BT has yet to build a fibre network or has poor connections. Some analysts have stated that this could lead to a damaging price war.
All in all, it seems as if BT is in damage-control mode. The company is struggling to receive approval for its acquisition ofEE while regulators are starting to question BTs dominance over certain markets.It could take up to two years for BTs acquisition of EE to go ahead.
There are plenty of speed bumps ahead for BT. If regulators were to turn against the company, theres no telling what effect this would have on group earnings.
Discussing a deal
Last month Vodafone revealed that it was in talks with US-based Liberty Globalover potential asset swaps. Takeover speculation was rife following this announcement,and the lack of information issued by the two companies since is only fuelling the rumour mill.
The only significant news to be released by Vodafone since, has been the announcement that the company is changing how it measures organic growth.In future, Vodafones sales figures will exclude revenue from other operators using its cables to route international voice calls. Unfortunately, this restatement means that, contrary to previousstatements, Vodafones sales are now falling in its key UK market.
Deal imminent?
Does this change in accounting standards have anything to do with Libertys interest in the company?
It could do. As the two companies have kept quiet on the matter since talks were announced, it is likely that a vigorous due diligence process is taking place. This is good news for shareholders. A robust due diligence process will reduce the risk of overpaying and finding skeletons in the closet at a later date.
Analysts believe that there could be tens of billions of dollars in synergies at stake if Vodafone and Liberty do agree on amerger or asset swap. So, the deal will take some time to put together.
And while investors wait for news regarding the Vodafone/Liberty deal, theyre set to receive a dividend yield of 4.9% from Vodafones shares a return youd be hard pressed to find elsewhere.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.