The UK鈥檚 competition watchdog has provisionally cleared the听proposed merger of Virgin Media and Virgin Mobile with O2.听
The听拢31听billion听deal was subjected to an in-depth investigation by the听Competition and Markets Authority amid concerns it would harm competition in the wholesale market.听
Both听companies听provide services to other mobile network operators in the UK.听Virgin provides leased lines to Vodafone and Three, which they use to connect key parts of their network听–听referred听to in the industry as 鈥榖ackhaul鈥�听– while听O2 offers听its network to听mobile operators such as Sky and听Lycamobile, which do not have their own听network.听
The CMA was initially concerned that, following the merger, Virgin and O2 could raise prices or reduce the quality of these wholesale services, or withdraw them altogether.听听
If this were to happen, the quality of these other companies鈥� mobile services could suffer and 鈥� if wholesale price increases were passed on by these companies to their customers 鈥� their retail prices could go up.听听
This might make Virgin and O2鈥檚 own mobile service comparatively more attractive to retail听customers, but听would ultimately lead to a worse deal for UK consumers.听
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However, the CMA concluded听that as backhaul costs are only a relatively small element of rival mobile companies鈥� overall costs, it is unlikely that Virgin would be able to raise backhaul costs in a way that would lead to higher charges for consumers.听
As 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,听the merged company will still need to maintain the competitiveness of its service or risk losing wholesale custom.听
As with leased-line services, there are听a number of听other companies that provide mobile networks for telecoms firms to use, meaning O2 will need to keep its service competitive with its wholesale rivals听in order to听maintain this business.听
The CMA听had also said at the outset of the investigation that听it was not concerned about overlapping retail services such as mobile, due to the small size of Virgin Mobile.听听
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鈥�Given the impact this deal could have in the UK, we needed to scrutinise this merger closely,鈥� said听Martin Coleman, CMA Panel Inquiry Chair.听
鈥�A thorough analysis of the evidence gathered during our phase 2 investigation has shown that the deal is unlikely to lead to higher prices or a reduced quality of mobile services 鈥� meaning customers should continue to benefit from strong competition.鈥�听
Virgin Media boss Lutz Schuler will lead the new company, with听O2 finance chief Patricia Cobian becoming听Chief听Financial听Officer.听