O2 and Virgin Media can press ahead with their £31 billion merger after competition authorities found no reason to block the deal.
Parent companies Telefonica and Liberty Global had hoped to complete the deal by the middle of 2021, but had to wait on the outcome of an inquiry by the Competitions and Markets Authority (CMA) launched late last year.
The watchdog wasn’t concerned about the reduction in retail competition given the relatively small mobile customer base of Virgin Media, but rather the potential impact of the merger on the wholesale market.
Virgin Media is the second largest provider of backhaul services to mobile operators after Openreach and the fear was that the enlarged entity might be tempted to withhold or reduce the quality of service provided to rivals, or increase prices, in order to protect its own interests.
If competitors passed these additional costs onto customers, then it they would be less attractively priced that the tariffs offered by the joint-venture. However, the CMA has provisionally concluded that there is unlikely to be any substantial lowering of competition.
It said backhaul represents a small fraction of operator costs, so O2-Virgin Media would be unlikely to be able to increase prices sufficiently to harm competition, while the presence of Openreach and other players in the market means it would lose business if it did so.
“Given the impact this deal could have in the UK, we needed to scrutinise this merger closely,” 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.”
The combination of O2’s mobile infrastructure and Virgin Media’s cable network would immediately create one of Europe’s largest telecoms organisations, powering communications for nearly 40 million subscribers. Consolidation would also result in £6.2 billion in savings and provide the scale and capability to rival BT and Vodafone in the field of converged networking services.
Parent companies Liberty Global and Telefonica have pledged to create 4,000 jobs and 1,000 apprenticeships if they receive regulatory approval and have committed to increase the combined firm’s gigabit broadband footprint by an additional one million premises, bringing the total figure to 16 million, within 12 months of the merger.
There are also pledges to add a further seven million homes to ‘gigabit networks’ and to cover more than 100 towns and cities by the end of 2021.
“Liberty Global and Telefónica note the CMA’s publication of its provisional findings as part of its review into the proposed merger of their UK businesses,” the two companies said in a joint-statement. “We continue to work constructively with the CMA to achieve a positive outcome and continue to expect closing around the middle of this year.”
Last week, it was confirmed Virgin Media CEO Lutz Schüler would lead the combined entity, with O2 CFO Patricia Cobian performing the same role.