£31bn merger between Virgin and O2 provisionally cleared by regulator

14 April 2021, 08:28 | Updated: 14 April 2021, 08:45

The merger will bring together O2's 34 million customers with Virgin Media and Virgin Mobile's 5.3 million users. Picture: PA

By Patrick Grafton-Green

A £31 billion mega-merger between Virgin Media and O2 has been provisionally cleared by the UK competition watchdog.

The merger, first announced last May, will bring together 34 million customers on O2's mobile network with Virgin Media and Virgin Mobile's 5.3 million broadband, pay-TV and mobile users.

An in-depth investigation by the Competition and Markets Authority (CMA) found the deal is unlikely to lead to a substantial lessening of competition in the supply of wholesale services.

The CMA launched its probe amid concerns Virgin and O2 could have an incentive to raise prices or reduce the quality of wholesale services to other network operators in the UK, or even withdraw them altogether, leading to a worse deal for retail consumers.

But in its provisional decision, the CMA said the merged company would face competition from other providers and would therefore need to remain competitive or risk losing wholesale customers.

CMA panel inquiry chairman Martin Coleman said: "Given the impact this deal could have in the UK, we needed to scrutinise this merger closely.

"A thorough analysis of the evidence gathered during our phase two investigation has shown that the deal is unlikely to lead to higher prices or a reduced quality of mobile services - meaning customers should continue to benefit from strong competition."

A spokesman for Virgin Media owner Liberty Global and Telefonica, which owns O2, said: "We continue to work constructively with the CMA to achieve a positive outcome and continue to expect closing around the middle of this year."

The deal values Virgin Media, which is owned by Liberty Global, at £18.7 billion and Telefonica's O2 at £12.7 billion.

At the time the deal was announced, the companies said it would create a "full converged platform" for customers, and will mean an investment of £10 billion in the UK over the next five years.

The CMA's investigation was launched in December following a request from the companies for the watchdog to give the deal the green light quickly.

Telefonica's O2 is valued at £12.7 billion. Picture: PA

The CMA said at the outset that it was not concerned about overlapping retail services such as mobile, due to the small size of Virgin Mobile, but instead focused on potential wholesale services concerns.

The CMA was only granted permission to investigate the deal after the European Commission handed over the case in November.

Under European law, the biggest mergers are generally dealt with by the commission's regulators in Brussels.

But the CMA asked Brussels regulators to hand the case back because it primarily only affected UK customers and that any findings would come after the Brexit transition period had ended.