BT (LSE: BT-A) has transformed itself over the past decade, and the latest stage in the companys transformation will be the acquisition of mobile network provider EE.
Unfortunately, as BT tries to seal the deal, the company is attracting an increasing amount of criticism regarding its dominance over the UKs broadband market.
Main provider
BT is the main provider of fibre broadband infrastructure within the UK. However, as the company has such a vice-like grip over the broadband market, rival groups have started to push for the separation of the division that operates the network, Openreach.
The recent flurry of criticismis a result ofa call by the Competition and Markets Authority for comments on BTs acquisition of EE. It is claimed that after BT and EE have merged, EE will acquire all of its fibre infrastructure from BT, impacting other, smaller providers, which are trying to gain a foothold in the market.
Indeed, start-ups likeCityFibre, as well as telecoms giants such as Vodafone, TalkTalk and Sky, are all starting to provide high-speed fibre networks. These networks often boast connectivity speeds that are many times faster than the speeds offered by BT.
Whats more, over the long term BT is planning to use the acquisition of EE as well as the companys monopoly over the UK fibre network to move all of itsofferings on to a single, internet-based platform. As a result, the group will be able to provide broadband, TV, mobile and landline services from one platform.
Mobile domination
There are also concerns about the amount of mobile spectrum that BT and EE will control if the buyout goes through. And its not just the BT-EE deal thats causing trouble on this front.Threesdeal to buyO2means that between BT and Three, the majority of the UKs mobile spectrum capacity will be owned by only two operators.
This factor alone could put the deal on ice. Regulators havestrived for years to maintain a four-player market. The CMA usually considers the surrounding market when weighing up the effect any deals will have on competition.
Should you be concerned?
But should investors be concerned about the prospect of a break-up? Well, it depends which part of the business BT is forced to divest.
Splitting up EE would impact BTs growth potential, although this could mean that BT would be allowed to keep control of its Openreach division. Considering BTs long-term plans for an internet based offering, the companys grip over the UKs broadband market is essential.
However, if BT was forced to divest its Openreach arm, the company would have to redraw its future plans. Although, Openreach is a relatively low-margin business, so a partial sale of the division could work in BTs favour.
With so much uncertainty on the horizon, BTs premium valuation appears to be unwarranted. Indeed, the company currently trades at a high forward P/E of 15.4.
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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.