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EU Refers £31bn O2 and Virgin Media Merger Back to UK CMA

Thursday, November 19th, 2020 (2:09 pm) - Score 8,640
virgin_media_o2_uk_merger

The European Commission (EC) has today agreed that the UK’s Competition and Markets Authority (CMA) should have the final say on Liberty Global’s proposed mega-merger between broadband ISP Virgin Media and mobile operator O2 (Telefonica UK), but this is not expected to delay the outcome.

The deal, which was announced in May 2020 and notified to the EC’s competition watchdog on 30th September 2020, values O2 at £12.7bn and Virgin Media at £18.7bn (total enterprise value). In theory, there shouldn’t be too many obstacles to the deal since the different types of network involved are complementary and unlikely to have a significantly negative impact, but the situation around Brexit does add another political dynamic.

On 8th October 2020, the CMA requested that the EC formally allow it to assess the deal and as part of that they raised the prospect of possible “competition concerns” in a number of telecommunications markets in the UK, namely the markets for retail and wholesale mobile services, and the market for leased lines. The imminent expiry of the Brexit transition period, due at the end of December 2020, was also tabled as an issue.

Sadly, the EC did not elaborate on what the perceived “competition concerns” were, although we’d be very surprised if they amounted to a significant obstacle for the deal. A similar mega merger between BT and EE a few years ago managed to sail through the regulatory process without causing any major surprises.

EC Statement

The evidence gathered by the Commission confirmed that the proposed transaction threatens to affect competition in the telecommunications sector in the UK, where Telefonica and Liberty Global are currently two large market players.

Based on an overall assessment, the Commission decided to refer the proposed transaction to the CMA which will deal with the case under UK national law.

As a result of the close cooperation between the CMA and the Commission during the procedure, the CMA is already well informed on the elements of this case and the investigation will continue uninterrupted.

Earlier this year Liberty Global predicted that their transaction, subject to the aforementioned approval, would complete by around the middle of 2021. Given the EC’s comments above, that time-scale still seems feasible, although we suspect that the impact of COVID-19 on operations may be much more likely to trigger a delay than anything else.

A spokesperson for both companies said: “Liberty Global and Telefónica note that the European Commission has completed its review of the proposed merger of the UK businesses in Phase 1, and has now referred this matter to the UK’s Competition and Markets Authority. The Parties have requested the CMA to start a ‘fast-track’ Phase 2 in the UK. We have been in close contact with the CMA and Ofcom throughout this process and are confident the transition will be seamless. Our view remains that this transaction is pro-competitive and we continue to expect closing around the middle of next year.

Once approved, the combined company plans to invest an additional £10bn on their respective 5G mobile and FTTP broadband deployments. As part of that Virgin Media has said that their rollout of full fibre technology could be extended to another 7-8 million UK premises (here), which would move it into rural areas and raise Ofcom’s regulatory eye (this is one reason why a wholesale solution may be the outcome, giving rivals ISPs more options and Openreach a headache).

Leave a Comment
5 Responses
  1. Avatar Matthew says:

    This made total sense the transition period was going to be over before the decision had been made most likely so therefore the EU Commission wouldn’t have any authority to approve or decline it and fact it involves only one country might of still of been given back to CMA.

    1. Avatar Stephen M. says:

      One country? which one is that?

  2. Avatar Mark Scott says:

    Nice of them, it wasn’t their call to make. The Merger was announced in May when we left the EU.

    1. Avatar Matthew says:

      Very true technically though if they hadn’t dragged there feet they could of perhaps just about got the review done in time for January.

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