CMA green lights £31B merger of telecoms giants Virgin and O2

CMA green lights £31B merger of telecoms giants Virgin and O2
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The Competition & Markets Authority (CMA) has given the green light to a £31 billion merger of telecoms giants Virgin and O2.

Provisional approval of the deal was granted last month but today’s announcement clears the companies to form a combined entity that can better compete against BT/EE after their own £12.5 billion merger in 2016.

Virgin and O2 both sell wholesale services to a number of mobile operators in the UK. In the case of Virgin, their wholesale services are in the form of leased lines. O2, for its part, offers its mobile network to MVNOs such as GiffGaff and Tesco Mobile that do not have their own.

The CMA initially had concerns that a merger of Virgin and O2 could lead to increased prices or reduced quality of their wholesale services which consumers would ultimately suffer and pay the price for.

A group of independent CMA panel members were tasked with examining the deal.

Martin Coleman, CMA Panel Inquiry Chair, said:

“O2 and Virgin are important suppliers of services to other companies who serve millions of consumers. 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 panel concluded that competition is unlikely to be hindered for several key reasons:

  • Leased line costs are a small part of rival mobile operators’ costs so it’s unlikely Virgin could increase prices to a point that it would increase charges for consumers.
  • Other leased-line providers – from the large geographical reach of BT Openreach to a number of smaller players – provide the same services which means the merged company will need to maintain its competitiveness.
  • Similar to leased-line services, a number of mobile networks are available for companies to use which means O2 will need to keep its offering competitive.

The leased-line conclusions of the panel, in particular, are likely to face criticism.

While more leased-line rivals are emerging, BT Openreach is the only alternative to Virgin with a large geographical reach and remains the sole provider in some areas. Competition in the mobile networks space remains more healthy with four major networks for consumers and companies to choose from.

The deal will see around 14,000 Virgin Media employees and 6,700 O2 staff in the UK work under the same umbrella company.

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