CMA voices wholesale concerns over O2-Virgin Media merger

(Image credit: Future)

The UK Commissions and Markets Authority (CMA) has expressed its concern that prices could rise as a result of reduced competition the proposed £31 billion joint-venture between Virgin Media and O2.

A full investigation was launched by the CMA last month after it was handed the responsibility from the European Commission.

The authority has now published its ‘issues statement’ which gives parties an idea of what it will consider when making its judgement and what remedies it might propose in order to gain approval.

O2 Virgin Media merger

Specifically, the CMA is concerned about the combined entity’s impact on the wholesale market. O2’s mobile network is used to power services provided by a number of Mobile Virtual Network Operators (MVNOs), including Sky Mobile. Meanwhile Virgin Media is the second largest provider of backhaul services to mobile operators after Openreach.

The fear is that the enlarged entity might be tempted to withhold or reduce the quality of service provided to rivals, or increase prices, in order to protect its own interests.

There is less concern about the impact on the consumer market, given O2 and Virgin Media’s relatively complementary service, however.

“There will be a horizontal overlap between the Parties in relation to retail mobile services where O2 and Virgin Mobile are both active,” it said. “We do not plan to investigate this, given that evidence we have seen to date suggests that Virgin Mobile has a low and declining market share at the retail level. We have also seen evidence that suggests that O2 and Virgin Mobile are not close competitors, in particular Virgin focusses on attracting mobile customers by cross selling its mobile offering as an addon to its fixed services.”

The combination of O2’s mobile infrastructure and Virgin Media’s cable network would immediately create one of Europe’s largest telecoms organisations, powering communications for nearly 40 million subscribers. Consolidation would also result in £6.2 billion in savings and provide the scale and capability to rival BT and Vodafone in the field of converged networking services.

Parent companies Liberty Global and Telefonica have pledged to create 4,000 jobs and 1,000 apprenticeships if they receive regulatory approval and have committed to increase the combined firm’s gigabit broadband footprint by an additional one million premises, bringing the total figure to 16 million, within 12 months of the merger. There are also pledges to add a further seven million homes to ‘gigabit networks’ and to cover more than 100 towns and cities by the end of 2021.

“Liberty Global and Telefónica note the CMA’s publication of its Issues Statement as part of its review into the proposed merger of their UK businesses,” the two companies said in a statement. “We continue to work constructively with the CMA to achieve a positive outcome. Our view remains that this transaction is pro-competitive and we continue to expect closing around the middle of this year.”

Steve McCaskill is TechRadar Pro's resident mobile industry expert, covering all aspects of the UK and global news, from operators to service providers and everything in between. He is a former editor of Silicon UK and journalist with over a decade's experience in the technology industry, writing about technology, in particular, telecoms, mobile and sports tech, sports, video games and media.