BT ultrafast 1Gbps broadband plans
BT is set to announce whether it has penned a £10bn deal with O2 or EE this week after talks concluded over the weekend. Reuters

BT has announced it will begin talks to acquire the UK's biggest mobile phone network EE in a deal worth £12.5 billion in cash and shares.

BT confirmed that it will enter exclusive talks to acquire EE with the proposed deal seeing EE's parent companies Deutsche Telekom and Orange holding 12% and 4% of BT shares if the deal goes through.

BT says the deal will allow for "significant synergies" in areas such as "network and IT rationalisation, back-office consolidation and savings on procurement, marketing and sales costs." The deal could potentially see job losses at EE in the long-run.

One major stumbling block for the deal being finalised is approval by the telecoms regulator Ofcom which will likely investigate this deal closely considering the respective dominant positions of BT and EE in the broadband/landline and mobile sectors.

The deal comes after weeks of talks between BT and the UK's two leading mobile phone networks, O2 and EE, both of whom are eager to secure the deal. In a reverse of the normal buyout process, it has been O2 and EE which have been pitching offers to BT rather than the other way around.

EE, which has over 33% market share in the UK and is the dominant force in the 4G market, was formed just five years ago by the merger of Orange and T-Mobile.

BT is looking to get back into the mobile phone market having spun off its BT Cellnet operation as O2 in 2001, and selling it to Telefonica in 2005 for £17.7bn.

The deal will see BT compete with companies such as Virgin Media and TalkTalk who are already offering their customers quad-play packages which include broadband, TV, mobile and landline.

Announcing the deal, BT said:

"The proposed acquisition would enable BT to accelerate its existing mobility strategy whereby customers will benefit from innovative, seamless services that combine the power of fibre broadband, wi-fi and 4G. BT would own the UK's most advanced 4G network, giving it greater control in terms of future investment and product innovation."

Sky is also thought to be looking at this market by launching its own service piggy-backing on the infrastructure of an existing network provider.

BT is also looking into launching its own network, and says that despite the latest deal, it will continue to push ahead with these plans.