The U.K.’s Competition and Markets Authority (CMA) has decided to allow the proposed merger between mobile operator O2, owned by Spanish telco Telefonica, and fixed operator Virgin Media.
The regulator had issued a provisional approval of this merger last month.
Both Virgin and O2 sell wholesale services to a number of mobile operators in the U.K. Virgin supplies wholesale leased lines to mobile operators and O2 provides its mobile network to companies that do not have their own.
The CMA was initially concerned that, following the merger, Virgin and O2 could raise prices or reduce the quality of these wholesale services. If this were to happen, it could lead to other companies being forced to offer lower quality mobile services or increase their retail prices which would negatively impact consumers.
Having examined the evidence, the CMA has concluded that the proposed merger is unlikely to lead to any substantial lessening of competition in relation to the supply of wholesale services.
CMA noted that the costs of leased lines are only a relatively small element of rival mobile companies’ overall costs, so it is unlikely that Virgin would be able to raise leased-line costs in a way that would lead to higher charges for consumers.
The regulator also highlighted that there are other players in the market offering the same leased-line services, including BT Openreach and other smaller providers. This means the merged company will still need to maintain the competitiveness of its service or risk losing wholesale custom, CMA said.
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.
“O2 and Virgin are important suppliers of services to other companies who serve millions of consumers. It was important to make sure that this merger would not leave these people worse off. That’s why we conducted an in-depth investigation,” said Martin Coleman, CMA panel inquiry chair.
“After looking closely at the deal, we are reassured that competition amongst mobile communications providers will remain strong and it is therefore unlikely that the merger would lead to higher prices or lower quality services,” he added.
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 ($15.56 billion). Once complete, the combined entity will have an enterprise value of almost £31.5 billion.
