Virgin Media, O2 Merger Achieves Final Clearance By CMA

The Competition and Markets Authority (CMA) has given its official go ahead for the 50-50 joint venture between Virgin Media and O2 to proceed.

Last month the CMA had given its provisional blessing to the merger, after initial concerns over backhaul pricing.

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.

CMA blessing

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 now official approval for the deal has been given.

“O2 and Virgin are important suppliers of services to other companies who serve millions of consumers,” said Martin Coleman, CMA Panel Inquiry Chair. “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.”

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“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,” Coleman 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 will 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.