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UK’s competition watchdog gives £31bn Virgin Media and O2 merger the seal of approval

The UK’s Competition and Markets Authority (CMA) has greenlit the proposed £31bn merger between Virgin Media and O2.

In its final report on the proposed alliance [PDF], the CMA said the combined entity would not be able (or incentivised) to disrupt the market for mobile backhaul or MVNOs meaningfully.

Virgin Media offers backhaul services – the fixed lines that connect mobile antennas to the core network – to various UK networks, namely Three, Vodafone, and Mobile Broadband Network Limited (MBNL, which is co-owned by O2 and Three).

The CMA found that its existing contractual obligations would mean that, in the short-to-medium term, Virgin Media would be unable to degrade or withdraw the services it provides to rivals.

Moreover, Virgin Media is a relative minnow in the backhaul space, and other providers (most notably Openreach, but also the new altnets) would be able to pick up the slack. It also found that backhaul represents a relatively small proportion of the cost of delivering mobile services, and thus any chicanery would result in minimal cost increases for customers.

The report also claimed that the proposed merger would have a minimal impact on MVNOs. O2 presently offers wholesale services to four named providers – Sky Mobile, Lycamobile, Manx Telecom, and Truphone.

Wholesale costs account for a small proportion of the retail cost of an MVNO mobile bundle, thus limiting the ability of the combined entity to distort the market. The CMA also pointed to the healthy competition in the carrier market, giving MVNOs an option to move to alternative providers.

Liberty Global and Telefónica, the respective owners of Virgin Media and O2, welcomed today’s news.

In a jointly released statement, Mike Fries, CEO of Liberty Global, and José Maria Alvarez-Pallete, CEO of Telefónica, said: “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.”

The combined entity will create a new company with products spanning fixed-line broadband, mobile, and paid TV. So far, the only outfit with fingers in all pies is BT, which also owns the EE mobile network.

Lutz Schüler, currently CEO of Virgin Media, will head the new business. Patricia Cobian, O2’s CFO, will also assume a leadership role in the venture.

Mark Evans, O2’s CEO, has not been provided a formal leadership role and is expected to depart following the conclusion of the merger. Brendan O’Reilly, O2’s CTO, is moving to Canadian infrastructure outfit BAI Communications as its CTO. ®


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