The Competitions and Markets Authority (CMA) has launched an in-depth investigation into the proposed £31 billion joint-venture between Virgin Media and O2.
The European Commission (EC) referred the case to the CMA last month after the latter argued it was better placed to make a judgement as the UK is set to leave the single market at the end of 2020.
Both Virgin Media and O2 had requested that the regulator fast tracked the case to ‘Phase 2’, which is standard practice when early stages of the investigation find there is sufficient evidence that a deal will reduce competition in
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 and Openreach in the wholesale market.
A proposed £12.5 billion merger between Three and O2 was blocked by the EC in 2016 on the grounds that this would reduce the number of mobile operators in the UK from four to three – although Three has since successfully appealed this decision.
However, given the complementary nature of Virgin Media and O2’s networks, approval in this instance is far more likely – even if it is with conditions.
The CMA says it is concerned that the deal could have negative consequences for the mobile and fixed wholesale markets. O2 is a supplier of Mobile Virtual Network Operator (MVNO) services, while Virgin Media offers backhaul to operators.
“The CMA is concerned that, following the merger, Virgin and O2 may have an incentive to raise prices or reduce the quality of these wholesale services, ultimately leading to a worse deal for UK consumers,” it said.
The investigation will immediately proceed to ‘Phase 2’, which will be overseen by an independent panel who will consider all available evidence to inform its in-depth analysis.
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.
Both say they are happy that the investigation is progressing and hope to conclude the merger soon.
“Liberty Global and Telefónica are pleased that the CMA has agreed to the parties’ request to start a ‘fast-track’ to Phase 2 process in the UK,” said a spokesperson for both firms. “We look forward to working constructively with the CMA to achieve a positive outcome. We continue to expect the transaction to close around the middle of next year.”