Competition Watchdog Clears O2 and Virgin Media Merger

The Competition and Markets Authority (CMA) has provisionally approved a massive £31 billion tie-in between mobile operator O2 and cable broadband and pay-TV provider Virgin Media.

Telefónica, the Spanish owner of O2, and Liberty Global, parent company of Virgin Media, first announced their plans to merge their UK operations in a 50:50 joint venture last May.

The union will create a new telecoms giant, with more than 40 million customers and £11 billion in annual revenue. The new company will be a major rival to BT, which owns much of the UK’s broadband infrastructure through Openreach and also owns mobile operator EE.

The CMA launched an in-depth investigation into the proposed merger in December, over fears that it could reduce competition in the telecoms market. That watchdog has now concluded that the tie-in is unlikely to lead to higher prices or reduced quality of service.

Martin Coleman, chair of the CMA’s inquiry panel into the deal, said: “Given the impact this deal could have in the UK, we needed to scrutinise this merger closely. 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.”

The CMA was particularly concerned that the union would stamp out competition in the mobile market, particularly on the wholesale side. O2 is the largest UK mobile operator, with 34 million customers, and also provides use of its network to mobile virtual network operators (MVNOs) like giffgaff, Sky Mobile and Tesco Mobile.

Meanwhile, Virgin Media provides wholesale leased lines to mobile operators Three and Vodafone, crucial support for their mobile networks.

The CMA had expressed concerns that in the event of a merger, O2 and Virgin Media would raise prices for these services, reduce their quality or withdraw them entirely, “ultimately leading to a worse deal for UK consumers.”

But the investigation concluded that there are other players in the wholesale market, including BT, whose Openreach subsidiary has a wider reach than Virgin. O2 and Virgin Media will therefore need to keep their services competitive to “maintain this business,” the CMA said.

But the merger, expected to be completed by May, will still shake up the telecoms market in the UK, providing a counterbalance to BT. The resulting company is also expected to invest heavily in expanding its 5G and cable broadband services.

The new company will be headed by Virgin Media chief executive Lutz Schüler, who has previously worked at both Telefónica and Liberty Global in Germany.

The deal values Virgin Media at £18.7 billion and O2 at £12.7 billion.