The U.K.’s competition authority dismissed concerns that a merger of mobile operator O2 and fixed operator Virgin Media would have negative implications on wholesale services, provisionally clearing the proposed deal without conditions.
In a statement, the Competition and Markets Authority (CMA) said its investigation concluded the combination of the businesses was unlikely to have a negative effect on either fixed or mobile wholesale markets.
Both Virgin and O2 provide some wholesale services to other mobile network operators in the U.K., as well as retail services to consumers. The CMA noted that its investigation focused on whether the merger could lead to reduced competition in wholesale services as part of the review.
Virgin provides wholesale leased lines to mobile telecommunications companies, such as Vodafone and Three, which they use to connect key parts of their network. Similarly, O2 offers mobile operators such as Sky and Lycamobile, which do not have their own mobile network, use of the O2 network to provide their customers with mobile phone services.
The CMA said that it was initially concerned that, following the merger, Virgin and O2 could raise prices or reduce the quality of these wholesale services. Having examined the evidence, the CMA has now provisionally concluded that the proposed merger is unlikely to lead to any substantial lessening of competition in relation to the supply of wholesale services.
The regulator noted that backhaul costs are only a relatively small element of rival mobile companies’ overall costs, so it is unlikely that Virgin would be able to raise backhaul costs in a way that would lead to higher charges for consumers.
CMA also highlighted that there are other players in the market offering the same leased-line services, including BT Openreach – which has a much greater geographical reach than Virgin – and other smaller providers. This means the merged company will still need to maintain the competitiveness of its service or risk losing wholesale custom.
As with leased-line services, there are a number of other companies that provide mobile networks for telecoms firms to use, meaning O2 will need to keep its service competitive with its wholesale rivals in order to maintain this business, according to the regulator.
“Given the impact this deal could have in the UK, we needed to scrutinize this merger closely. 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,” said Martin Coleman, CMA panel inquiry chair.
The CMA has now invited any interested parties to respond to their provisional findings by May 5, 2021.
Liberty Global and Telefonica reached an agreement to merge their U.K. operations in a 50-50 joint venture in May last year.
The move will bring together the country’s largest mobile operator, O2, with cable operator Virgin Media and its MVNO Virgin Mobile. The JV will have a combined annual revenue of £11 billion ($15.13 billion). Once complete, the combined entity will have an enterprise value of almost £31.5 billion.
