UK Regulator Provisionally Approves Virgin, O2 Merger

The Competition and Markets Authority (CMA) has confirmed it is happy for the 50-50 joint venture between Virgin Media and O2 to proceed.

The CMA announced on Wednesday that it had provisionally cleared the proposed merger of Virgin Media and Virgin Mobile with O2.

The merger, which had been proposed back in May 2020, will combine Virgin Media’s broadband, TV, mobile and landline services with the mobile operations of O2.

Provisional approval

The CMA had launched an investigation into the merger last December, but was not concerned about the retail service to consumers, due to the small size of Virgin Mobile.

It however was concerned whether the merger could lead to reduced competition in wholesale services.

That is because Virgin utilises its core UK network to provide wholesale leased lines to mobile operators (i.e. backhaul services.

O2 meanwhile also offers third-party operators such as Sky and Lycamobile, which do not have their own mobile network, use of its network to provide their customers with mobile phone services.

The CMA had been concerned that, post merger, Virgin and O2 could raise prices or reduce the quality of these wholesale services, or withdraw them altogether.

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

It noted that backhaul costs are only a relatively small element of rival mobile companies’ overall costs, and there are other players in the market offering the same leased-line services, such as BT Openreach – which has a much greater geographical reach than Virgin.

“Given the impact this deal could have in the UK, we needed to scrutinise this merger closely,” stated 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,” he concluded.

Joint venture

It should be remembered that Virgin Media is owned by American cable giant Liberty Global, which in May 2018 sold most of its European assets to Vodafone.

However the one European asset it held onto was its UK operation, and the combination combination of Virgin Media and O2, will result in a nationwide integrated communications provider with over 46 million video, broadband and mobile subscribers, as well as £11 billion of revenue.

Virgin Mobile UK had for years used the EE mobile network under its Mobile Virtual Network Operator (MVNO) strategy.

That was until November 2019, when Virgin Mobile signed a MVNO deal with Vodafone. That arrangement with Vodafone has been terminated.

For O2 the move into a joint venture is the latest development of its ownership odyssey.

O2 (previously known as Cellnet) was originally by both BT and Securicor in the 1990s, before it was spun out of BT in the early 2000s, and was then acquired by Spanish incumbent Telefonica in 2006.

Prior to the merger O2 had been valued at £12.7 billion and Virgin Media valued at £18.7billion.

It is expected that the Virgin Media and O2 merger with present BT (which owns EE) with a notable challenge going forward.

There has also been speculation that the joint venture could drop the Virgin Media brand, and use the O2 name going forward.