LONDON BT Group (BT.L) won approval for its 12.5 billion pounds acquisition of mobile operator EE on Friday from British competition authorities which said it would not greatly reduce competition in broadband, fixed and mobile markets.
The decision, widely expected after the Competition and Markets Authority (CMA) provisionally gave the go-ahead last year, was the final hurdle to a tie-up between the biggest player in fixed-line and broadband and Britain's leading mobile network.
The CMA's John Wotton said evidence showed the merger was unlikely to cause significant harm to competitors or consumers as BT was a small player in mobile while EE had a minor presence in broadband.
But rival TalkTalk (TALK.L) said it was step back towards the days when BT, the former incumbent, dominated the market.
"We are disappointed, although not surprised, that the CMA has waved through the BT/EE merger, even though the new entity will be even more dominant than it was before privatisation 30 years ago," the company said.
BT owned the mobile network that eventually became O2 until it was spun out as a separate company in 2001 and bought by Spain's Telefonica a decade ago.
EE is jointly owned by France's Orange (ORAN.PA) and Deutsche Telekom (DTEGn.DE), both of which will become shareholders in BT.
BT Chief Executive Gavin Patterson said approval of the deal, which BT says will give it 35 percent of both the consumer broadband and mobile markets, was "great news".
"The combined BT and EE will be a digital champion for the UK, providing high levels of investment and driving innovation in a highly competitive market," he said.
Since it marries a broadband company with a mobile provider, the deal posed fewer competition issues than a combination of mobile operators.
More consolidation in the British market is on the horizon, however. European regulators are deciding whether to allow Hutchison (0215.HK), the operator of the smallest network Three, to buy one of the biggest after EE, Telefonica's (TEF.MC) O2.
That deal would reduce the number of networks from four to three, and any approval would require much stronger remedies, such as the sale of mobile frequencies, sources have said.
TalkTalk said it had estimated BT would control 40 percent of the consumer telecoms markets after it buys EE, a deal which closes on Jan. 29, while a combined Three/O2 would have the same amount of the mobile market.
BT's rivals, including Vodafone (VOD.L), are pushing regulator Ofcom to force the company to spin off Openreach, its networks arm, after it reviews the British market.
Openreach has to provide access to all broadband operators on the same terms as BT, but critics say service levels are not good enough and it does not have enough incentive to invest in new fibre networks.
BT's shares, which have risen by 17 percent since BT said it would buy EE in December 2014, were trading down 1.4 pct at 461 pence at 1437 GMT.
($1 = 0.6960 pounds)
(Editing by Adrian Croft)