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O2 and Virgin merger “unlikely” to harm competition, CMA rules

The UK's competiton watchdog has provisionally cleared the £31 billion merger

The Competition and Markets Authority (CMA) has provisionally concluded its investigation into the Virgin Media and O2 merger, ruling that the deal is “unlikely” to lessen the competition within the UK’s telecoms market.

The authority based its decision on the limited probability of Virgin overcharging consumers on backhaul costs, O2’s necessity to “keep its service competitive with its wholesale rivals in order to maintain this business”, as well as the widespread availability of market alternatives, some with a broader geographical reach – such as BT.

“The deal is unlikely to lead to any substantial lessening of competition in relation to the supply of wholesale services,” the CMA announced.

The ruling comes almost a year after the merger was first reported. On 4 May 2020, O2 parent company Telefonica confirmed that it was in talks with Virgin Media’s owner Liberty Global to create a UK-based merger as a formidable opposition to BT’s dominance in the sector. Days later, the two companies promised that the 50-50 joint venture would create £10 billion in UK investment over the next five years and deliver synergies valued at £6.2 billion.

However, the CMA launched an investigation into the merger in late 2020, based on concerns that the deal would lead to O2 and Virgin raising prices or reducing the quality of their wholesale services or even withdrawing the services altogether, thus increasing retail prices.

Commenting on today’s provisional ruling, CMA Panel Inquiry chair Martin Coleman said that “given the impact this deal could have in the UK”, the authority “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,” he added.

The news comes a week after Telefonica and Liberty Global announced a new CEO and CFO for the joint venture. Virgin Media CEO Lutz Schüler was appointed chief executive officer, while O2 CFO Patricia Cobian was named chief financial officer of the combined company. Both executives are expected to assume their roles upon completion of the transaction.

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