£31bn Virgin and O2 merger to complete by June

£31bn Virgin and O2 merger to complete by June

Virgin and O2 signage generic 16.9.jpg

The UK’s Competition and Markets Authority (CMA) has given final approval of the joint venture between Liberty Global and Telefónica to merge Virgin Media and O2.

The news follows the provisional approval granted by the CMA in April of this year, at the time the regulator raised concerns over possible prices rises or reductions in the quality of wholesale services following the transaction.

“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,” said Martin Coleman, chair of CMA panel inquiry.

“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.”

Following assessment by an independent CMA Panel members it was concluded that the deal is unlikely to lead to any reduction in competition due to the fact that firstly, the costs of leased lines are only a small part of rival mobile companies’ overall costs, so it is unlikely that Virgin would be able to raise leased-line costs leading to higher charges for consumers.

Secondly, that there are other players in the market offering the same leased-line services, including BT Openreach - which has a much greater geographical reach than Virgin. And lastly as with leased-line services, there are a number of other companies that provide mobile networks for telecoms firms to use, so O2 will need to keep its service competitive.

“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,” said Mike Fries, CEO of Liberty Global and José Maria Alvarez-Pallete, CEO of Telefónica, in a joint statement,

“We thank the CMA for conducting a thorough and efficient review. Lutz and Patricia are now set to take the reins and launch a national connectivity champion that will connect more people, ignite more businesses back to growth and power more communities for the greater good.”

As a result of the CMA approval, the transaction is now expected to close by 1 June 2021, with Lutz Schüler as CEO and Patricia Cobian as CFO of the newly combined company, that has yet to be named. Schüler is currently serves and CEO of Virgin Media and Cobian works as CFO of O2.

The new entity is expected to deliver synergies of approximately £6.2 billion and approximately £11 billion of revenue. The deal values Virgin Media at £18.7 billion and O2 at £12.7 billion.

Speaking on the impact of this merger to the market, Simon Williams, CEO at NTT DATA UK, said “This merger between O2 and Virgin Media is a crucial step forward for stimulating competition in the UK telecoms market, particularly when it comes to fixed-mobile convergence.”

“It is great to see that they have positioned themselves as the national connectivity champion for the UK as, together, they will be able to consolidate resources and invest in improved network infrastructure, which will accelerate the rollout of 5G technology nationwide and improve connectivity for more rural areas of the UK.”

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