BT has agreed definitive terms to buy mobile phone network EE for £12.5 billion, allowing BT to finally compete with Virgin Media as a "quad-play" provider by providing broadband, mobile, landline and television packages. The company entered into exclusive talks to buy EE last December after it snubbed rival network O2 in favour of EE's larger customer base and 4G network. EE is currently the UK's largest mobile network with 31 million customers, 24.5 million of which are mobile customers and 834,000 are fixed broadband customers.

In a statement this morning, BT said, "The combination of EE and BT will provide customers with innovative, seamless services that combine the power of fibre broadband with wi-fi and advanced mobile capabilities. Integrating the two companies will accelerate BT’s mobility strategy and increase BT’s capacity for future investment and product innovation as it continues to build world-class digital infrastructure in the UK."

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The finance the buyout, BT will pay a combination of cash and shares to current EE shareholders Orange and Deutsche Telekom. Deutsche Telekom will hold a 12% stake in BT while Orange will hold a 4% stake. Deutsche Telekom will also be able to appoint one non-executive member of the BT Board of Directors. BT also hopes to raise approximately £1 billion from the placing of new shares.

EE Chief Executive Olad Swantee said, "Joining BT represents an exciting next stage for our company, customers, and people. In the last few years alone, we have built the UK’s biggest, fastest and best 4G network, significantly advancing the digital communications infrastructure for people and businesses across Britain. Today’s announcement will ensure the UK remains at the forefront of the mobile revolution, bringing even more innovation and investment in world leading connectivity for our customers."

The acquisition is still subject to approval by the UK Competition and Markets Authority, though, which could prove fatal for BT as the deal will further consolidate the UK mobile market. BT isn't particularly worried, though, as it expects the deal to complete before the end of March next year. If anything, the BT/EE deal is likely to prove more troublesome for Three owners Hutchison Whampoa, as they've just entered into talks to buy O2 for £10 billion. This would bring the number of major UK mobile operators down to just three big players: BT/EE, Vodafone and Three/O2, eroding the amount of competition in the UK even further.