Virgin and O2 merger clears competition hurdle | Major Businesses | Business | News | Rapid TV News
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The proposed coming together of UK cable and mobile firm Virgin Media with telco O2 has passed a major potential obstacle after an investigation by the UK’s Competition and Markets Authority (CMA) has found no reason to prevent the deal.
Virgin gigabit network 25July2019 landsc
The merger could transform provision of wired and wireless communications in the UK and see a combined company that could offer genuine competition to market leader BT/EE which embarked on a similar peocess to merge fixed and wireless assets. Ultimately it could offer users greater choice of entertainment and faster mobile and broadband speeds.

The proposed combination of Virgin Media and O2 would create a nationwide integrated communications provider with more than 46 million video, broadband and mobile subscribers and an estimated £11bn of revenue. It would comprise O2’s core network of mobile users - as well as those from mobile virtual network operators (MVNOs) Giffgaff, Sky Mobile, Tesco Mobile and Lycamobile - along with the Virgin cable network, which is rapidly being upgraded for gigabit broadband. Crucially, it will add to Virgin’s fixed network O2’s expanding 5G infrastructure.

At the outset of its inquiry which was first announced in July 2020, the CMA said it was not concerned about overlapping retail services such as mobile, due to the small size of Virgin Mobile. It therefore focused on whether the merger could lead to reduced competition in wholesale services as part of its review.

One key area of interest was in backhaul. In this regard Virgin provides wholesale leased lines to UK telcos and O2 rivals Vodafone and Three. O2 offers mobile operators such as Sky and Lycamobile, which do not have their own mobile network, use of its wireless network to provide their customers with mobile phone services. The CMA was initially concerned that, following the merger, Virgin and O2 could raise prices or reduce the quality of these wholesale services, or withdraw them altogether. If this were to happen, the CMA warned that the quality of these other companies’ mobile services could suffer and – if wholesale price increases were passed on by these companies to their customers – their retail prices could go up.

Yet having examined the evidence, the CMA inquiry group has now provisionally concluded that the deal is unlikely to lead to any substantial lessening of competition in relation to the supply of wholesale services.

“Given the impact this deal could have in the UK, we needed to scrutinise this merger closely,” remarked CMA panel inquiry chair Martin Coleman. “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.”

Assessing the CMA’s ruling, Kester Mann, director, consumer and connectivity at CCS Insight said that even though the merger was a “blockbuster” deal that could transform the UK telecoms landscape, the CMA’s provisional approval comes as no surprise given that the deal does not create a significantly stronger player in either the fixed-line or mobile markets. “For customers, the move marks the next step on the UK’s journey toward bundled telecom services,” he remarked. “The joint venture will need to dig deep to fund the costly expansion of cable and 5G services throughout the UK and make tough decisions over its future brand direction.”

Mann added that the deal could still trigger a ripple effect on the UK market. Further deal-making – potentially including Vodafone, Three and Sky – could not be ruled out in his opinion.