Virgin, O2 merger given green light
May 20, 2021
By Colin Mann
Following a provisional clearance in April 2021, the UK’s Competition and Markets Authority (CMA) is now allowing the proposed merger of Virgin Media and Virgin Mobile with O2 to go ahead.
Both Virgin and O2 sell wholesale services to a number of mobile operators in the UK. 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.
The merger was referred to a group of independent CMA Panel members for an in-depth Phase 2 investigation. The Group has concluded that the deal is unlikely to lead to any substantial lessening of competition for a number of reasons:
- 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.
- There are other players in the market offering the same leased-line services, including BT Openreach – which has a much greater geographical reach than Virgin – and other smaller providers. This means the merged company will still need to maintain the competitiveness of its service or risk losing wholesale custom.
- 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.
“O2 and Virgin are important suppliers of services to other companies who serve millions of consumers,” noted 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. 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.”
The CMA cleared the transaction without remedies and now all regulatory conditions are met in alignment with the original terms and the transaction is now expected to close by June 1st, 2021.
Liberty Global and Telefónica, the owners of Virgin and O2 respectively, announced the joint venture in May 2020, bringing together multiplay operator Virgin Media, and mobile telco O2. They say the combination will create a stronger fixed and mobile competitor in the UK market, supporting the expansion of Virgin Media’s giga-ready network and O2’s 5G mobile deployment for the benefit of consumers, businesses and the public sector. The joint venture is expected to deliver substantial synergies valued at £6.2 billion on a net present value basis after integration costs and will create a nationwide integrated communications provider with £11 billion of revenue.
The appointment of Lutz Schüler as Chief Executive Officer and Patricia Cobian as Chief Financial Officer of the combined company upon completion of the transaction was announced in April 2021. Schüler is currently Chief Executive Officer of Virgin Media and Cobian is Chief Financial Officer at O2.
“This is a watershed moment in the history of telecommunications in the UK as we are now cleared to bring real choice where it hasn’t existed before, while investing in fibre and 5G that the UK needs to thrive,” said Mike Fries, CEO of Liberty Global, and José Maria Alvarez-Pallete, CEO of Telefónica. “We thank the CMA for conducting a thorough and efficient review. Lutz and Patricia are now set to take the reins and launch a national connectivity champion that will connect more people, ignite more businesses back to growth and power more communities for the greater good.”