Virgin Media and 02 merger gets provisional green light

As well as retail services to consumers, both Virgin and O2 provide wholesale services to other UK mobile network operators in the UK – and this factor was an initial fear for the CMA.

Virgin provides wholesale leased lines to mobile networks such as Vodafone and Three, a process known in the industry as ‘backhaul’. Similarly, O2 provides the network for mobile operators including Sky and Lycamobile.

The CMA was concerned that, following the merger, Virgin and O2 could raise prices or reduce the quality of wholesale services, or withdraw them altogether. If this were to happen, the watchdog had warned, the quality of other companies’ mobile services could suffer and – if wholesale price increases were passed on by these firms to customers – retail prices could surge.

The CMA believed such a scenario might make Virgin and O2’s own service more attractive to retail customers, but would ultimately lead to a worse deal for consumers. Its review, therefore, focused largely on whether the merger could lead to reduced competition in wholesale services.

The outcome
The CMA’s inquiry group has now “provisionally concluded” that the deal is unlikely to lead to any substantial lessening of competition in the supply of wholesale services.

This is because of the following findings:

· Backhaul costs are only a small element of rival companies’ overall costs, so it’s unlikely Virgin could raise backhaul costs in a way that would lead to higher charges for consumers.

· 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 other smaller providers. This means the merged company will still need to maintain the competitiveness of its service or risk losing wholesale custom.

· Other companies provide mobile networks for telecoms firms, meaning O2 will need to keep its service competitive with wholesale rivals to maintain this business.

Martin Coleman, CMA panel inquiry chair, 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.”