Virgin Media and O2 merger investigation fast tracked

Virgin Media and O2 requested the investigation be moved to the Phase 2 stage after the CMA decided the merger raised competition issues.

They are worried about the potential impact on competition within the broadband and mobile markets, and so they will now look at the joint venture in more detail.

An independent panel has been appointed, with a final decision set to be made by the end of May 2021.

Competition concerns

The CMA are concerned the merger between Virgin Media and O2 will substantially reduce competition in the UK telecommunications market.

Specifically, they're worried about the supply of wholesale access and passive fibre leased line access within the mobile and broadband networks.

They will now conduct an in-depth investigation to check whether the proposed merger could be expected to lead to a significant lessening of competition within the UK.

On the request of Virgin Media and O2's owners, the case has been fast tracked to this stage after the CMA concluded early in their Phase 1 investigation that competition could be affected and a Phase 2 investigation would likely be needed.

The independent panel now appointed by the CMA will request information from interested parties with the statutory deadline set as 27 May 2021.

Joint venture

The joint venture between Virgin Media and O2 was confirmed in May 2020, with the two companies agreeing to combine to create a communications giant.

A fact sheet provided by both companies say it would create a nationwide communications provider with over 46 million subscribers across the various elements of the business:

• 3.7 million pay TV customers
• 5.3 million broadband customers
• 4.6 million fixed-line voice customers
• 32.6 million mobile customers

They say the 50-50 joint venture would put customers first, offering them innovative products, greater choice and better value.

Under the agreement, £10bn would be invested in Virgin Media's broadband network and O2's 5G network over the next five years.

Earlier this year, Virgin Media confirmed none of their high street shops would reopen after the coronavirus lockdown, although they said the decision wasn't related to the potential merger with O2.

Roadblocks ahead?

While the decision to fast track the investigation was made at Virgin Media and O2's request, it's clear an in-depth investigation is the only way to resolve the CMA's concerns about the joint venture.

Back in 2016, Three were blocked from taking over O2 on the grounds of reduced competition, with the conclusion that the takeover would result in less choice for customers along with higher prices.

As the two companies both provided mobile services, that judgement was understandable as it would have reduced the number of mobile networks in the UK from four down to three.

However, the Virgin Media and O2 joint venture is altogether different as their services operate mainly in separate areas - Virgin are pay TV and broadband specialists while O2 have no fixed line broadband service anymore and focus instead on their mobile network.

Virgin Media do have a mobile service, yet this is as a mobile virtual network operator (MVNO) rather than a network.

In essence, this joint venture looks more like the merger between BT and EE in 2016 than the failed Three/O2 takeover attempt.

That was cleared to proceed after the CMA concluded it would not lead to higher prices for customers, nor would it cause significant harm to competition.

We'll have to wait until the middle of 2021 to find out whether the same applies to the Virgin Media and O2 joint venture.