CMA gives provisional approval to O2 and Virgin Media merger

The suggested £31bn merger between the broadband and mobile giants will spark the £10bn works to extend 5G and FTTP full fibre services. Though concerns had been raised around increased consumer pricing and the anti-competitive impact of the 50-50 joint venture, the CMA has now provisionally cleared the project.

A similar merger between EE and BT has already been approved by the CMA. The two companies have said their venture will be pro-competition, and they'll continue to focus on different sectors of the UK telecoms market.

The provisional approval states that the deal is unlikely to lead to a reduction of competition relating to wholesale services.

CMA provisional approval

The CMA based its decision on several factors. First, it concluded that Virgin would be unable to raise backhaul costs to an extent that could lead to higher charges for customers. With the likes of Openreach offering a much wider spread of similar leased-line services, and a number of companies operating mobile networks, the new merger would be forced to maintain competitiveness in order to maintain its business.

Both Virgin and O2 provide wholesale services as well as to private customers. Virgin provides backhaul services to Vodafone and 3, while O2 hosts operators including Sky and Lycamobile who don't run their own networks. The CMA initially referred the deal for a fast track Phase II investigation in December 2020.

What the future holds

Virgin and O2 have already committed to investing £10bn by 2025/6 to accelerate the deployment of 5G and deliver gigabit capable broadband. They expect to reach an additional one million homes within 12 months of the merger closing.

With an ambition to accelerate investment in new telecoms technology, the merged company have already spoken of their ambition to connect an additional 7m homes to superfast broadband. That would see FTTP tech moving into smaller towns and villages.

However, Virgin Mobile and Vodaphone have recently agreed a five-year contract to host their MVNO base. In effect that means that Virgin's fixed line and O2 mobile networks won't be fully convergent for some time yet. However, the joint venture is expected to provide substantial synergies with a value of more than £6bn, while the overall value of their nationwide integrated communications service will be £11bn.

Seismic shift

The merged business is likely to prove disruptive for the UK broadband market, with a wholesale solution for fixed line ISPs that would put them in direct competition with Openreach. BT's FTTP network is currently available to 4.5 million premises while Virgin's blend of FTTP and gigabit-capable Hybrid Fibre Coax (HFC) can already reach more than 15 million.

Martin Coleman, CMA Panel Inquiry Chair, said the merger had to be scrutinised carefully, given the impact it could have on the UK's telecoms sector. He added that the CMA's Phase II investigation had concluded that the deal was unlikely to lead to other reduced quality services or higher prices, meaning that customers should continue to benefit from strong competition in the sector.

The CMA has invited interested parties to respond to the provisional findings by 5pm on 5th May, 2021. It's unlikely that any responses will substantively change the outcome.