Tuesday, 11 May 2021

Virgin Media–O2 merger gets provisional green light from CMA

by Harry Baldock, Total Telecom
Wednesday 14 April 21

The Competitions and Markets Authority (CMA) said that the £31 billion deal was unlikely to reduce competition in the supply of wholesale services

Back in May 2020, Liberty Global-owned Virgin Media announced that it was seeking to merge with Telefonica’s O2 in the UK. The mega-merger would be worth £31 billion, bringing together the 34 million customers of O2’s mobile network with the 5.3 million Virgin Media subscribers, most of whom were for fixed broadband. Since then, both Virgin and O2 said that the move will be good for customers…

Back in May 2020, Liberty Global-owned Virgin Media announced that it was seeking to merge with Telefonica’s O2 in the UK. The mega-merger would be worth £31 billion, bringing together the 34 million customers of O2’s mobile network with the 5.3 million Virgin Media subscribers, most of whom were for fixed broadband.

Since then, both Virgin and O2 said that the move will be good for customers, with Virgin Media CEO Lutz Schuler saying at last year’s Connected Britain event that the deal would be “good for the country” and create around 5,000 jobs. It was announced last week that Schuler will head up the newly merged entity.

But for the regulators, such a large merger presents a considerable challenge. The two companies claim that their combination is a pro-competitive move, giving them a greater platform to challenge the hegemony of BT and Openreach. On the other hand, O2 and Virgin both provide crucial wholesale services to other industry competitors within the UK, with a merger potentially meaning an increase in prices for these services, or indeed a lowering of service quality or complete withdrawal.

For example, as what is known as a virtual mobile network operator (MVNO), Sky and Lycamobile are entirely reliant on O2’s network for their mobile services, while mobile rivals Vodafone and Three both use parts of Virgin Media’s fibre network for their backhaul.

Further muddying the waters was the Brexit issue, which saw the CMA and the European Commission (EC) forced into discussions over whose jurisdiction the merger fell. While the EC was set to make a provisional ruling in November last year, by December the CMA was announcing an investigation into the competitive nature of the merger.

Today, some four months later, the CMA has announced it has provisionally cleared the merger to go ahead.

“Given the impact this deal could have in the UK, we needed to scrutinise this merger closely,” said Martin Coleman, CMA Panel Inquiry Chair. “A thorough analysis of the evidence gathered during our phase 2 investigation has shown that the deal is unlikely to lead to higher prices or a reduced quality of mobile services – meaning customers should continue to benefit from strong competition.”

In their decision, the CMA said that backhaul costs were a “relatively small element” or rival mobile operators overall costs, so increases in costs would not likely result in increased costs for consumers. Similarly, the review argued that there are numerous other mobile networks available for MVNOs to lease from, meaning that O2 will need to keep its offering competitive.

The deal is now expected to close around the middle of this year.

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