The Competition & Markets Authority (CMA) has approved a £31 billion merger between telecoms companies Virgin and O2.
Provisional clearance was announced last month, and the CMA’s final decision now allows the two businesses to combine into a single group positioned to compete more effectively with BT/EE following BT’s £12.5 billion acquisition of EE in 2016.
Both Virgin and O2 provide wholesale services to other operators in the UK. Virgin supplies leased lines, while O2 offers its mobile network capacity to mobile virtual network operators (MVNOs) such as giffgaff and Tesco Mobile, which do not operate their own national networks.
Initially, the CMA expressed concerns that merging these suppliers could reduce competition in wholesale markets, potentially resulting in higher prices or lower-quality services that would ultimately affect consumers.
An independent panel of CMA inquiry members conducted an in-depth investigation into the merger.
Martin Coleman, Chair of the CMA inquiry panel, 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 the merger is unlikely to substantially lessen competition for several reasons:
- Leased-line charges represent only a small portion of rival mobile operators’ overall costs, so it would be difficult for the merged firm to raise prices on leased lines to levels that would force operators to increase consumer prices.
- Multiple providers offer leased-line services across the UK, ranging from the wide reach of BT Openreach to several smaller suppliers, so the merged company will face alternatives and need to remain competitively priced.
- In the mobile wholesale market, there are several networks available for MVNOs and other customers to choose from, which creates ongoing pressure for O2 to keep its wholesale offering attractive.
The panel’s conclusions about leased-line competition may attract criticism. Although more leased-line providers have entered the market, BT Openreach remains the only provider with comparable nationwide coverage and is the sole supplier in some areas, which could limit choice locally. By contrast, the mobile network market is more competitive, with four major national networks available to consumers and businesses.
Following the merger, around 14,000 Virgin Media employees and 6,700 O2 staff in the UK will become part of the same company.
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