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CMA Provisionally Clears Virgin Media UK and O2 to Merge

Wednesday, April 14th, 2021 (9:01 am) - Score 2,304
virgin_media_o2_uk_merger

The UK Competition and Markets Authority has today “provisionally” cleared the proposed £31bn (total enterprise value) mega merger between broadband provider Virgin Media (Liberty Global) and mobile operator O2 (Telefonica), which will light the fuse on a major £10bn project to extend “full fibreFTTP and 5G mobile services.

The CMA had previously raised some competition concerns about the new 50-50 joint venture (here and here). Key issues reflected concerns over the risk of higher prices for consumers, as well as any anti-competitive impacts upon the wholesale focused Mobile Virtual Network Operator (MVNO) market and the market for business leased lines (e.g. those used to supply capacity to mobile operators / masts).

Despite this the merged company had always positioned their deal as being “pro-competitive” and a similar merger between BT and EE was able to sail through the CMA’s process without causing any big problems. In theory, there shouldn’t have been too many obstacles to the deal since both operators’ largely focus on different parts of the UK telecoms market.

In the end the CMA has provisionally concluded that “the deal is unlikely to lead to any substantial lessening of competition in relation to the supply of wholesale services” and they gave several reasons for this.

Reasons for the CMA’s Provisional Approval

➤ Backhaul costs are only a relatively small element of rival mobile companies’ overall costs, so it is unlikely that Virgin would be able to 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 Openreach (BT) – 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.

➤ As with leased-line services, there are a number of other companies that provide mobile networks for telecoms firms to use, meaning O2 will need to keep its service competitive with its wholesale rivals in order to maintain this business.

What comes next?

The combined business has already proposed to invest a further £10bn into the UK by 2025/26 (here). The money would be used to help acceleration the deployment of ultrafast 5G mobile (mobile broadband) and to expand their gigabit-capable home broadband network (via DOCSIS 3.1) to reach an extra 1 million premises “within 12 months of the merger closing” (total of 16 million).

On top of that the merged company has also previously spoken of their “ambition to accelerate investments” and connect a further 7 million homes to their gigabit broadband network “in the coming years.” Such a major network extension, using Fibre-to-the-Premises (FTTP) technology, would see them move into many smaller towns and villages.

One complication to all this is the fact that Virgin Media’s mobile division (Virgin Mobile) was already in the process of moving their MVNO base away from EE (BT) and on to Vodafone’s platform (here). The MVNO deal with Vodafone is expected to run for 5 years, which means that they won’t be able to fully converge their fixed line and O2 based mobile networks for quite a long time.

In fairness, it often takes a few years to fully develop the necessary products and integrations to make the best use of fully owning two different physical network platforms – just ask EE and BT about it. Plus, in a few years’ time, customers of Virgin Mobile will probably find that they have to endure yet another awkward SIM swapping exercise and those always cause some headaches.

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 2 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.”

Otherwise, the joint venture is expected to deliver substantial synergies valued at more than £6 billion on a net present value basis after integration costs and will create a nationwide integrated communications provider with £11 billion of revenue.

Going forward we strongly expect the merged business to launch a wholesale solution for fixed line UK ISPs (here), which would place them into direct competition with Openreach (BT). Such a change would represent a seismic shift in the UK broadband market and give Virgin Media’s network a new lease of life for future support and upgrades.

We note that Openreach’s (BT) rival gigabit-capable FTTP network is currently only available to 4.5 million premises, while Virgin Media’s mix of gigabit-capable Hybrid Fibre Coax (HFC) and FTTP – both harnessing DOCSIS 3.1 technology – can already cover more than 15 million premises (Openreach won’t reach that level until the mid to late 2020s).

The CMA has now invited any interested parties to respond to their provisional findings by 5pm on 5th May 2021, although we think that is highly unlikely to change the outcome.

Leave a Comment
16 Responses
  1. Buggerlugz says:

    “Backhaul costs are only a relatively small element of rival mobile companies’ overall costs” :/

    Please pass that one by Three, CMA!

    1. CarlT says:

      Mobile signal permitting there’s always the option to ditch Three.

  2. Random Precision says:

    Of topic, but has Virgin’s Gig1 rollout stalled?

    1. JP says:

      It’s seems like it, but no official word and I’m sure they are just waiting for lock downs to finish to restore availability of bandwidth to the network before they add more bandwidth hungry services to the network. :L

    2. Mark Jackson says:

      No it hasn’t stalled, and we’ve seen them growing into new areas recently. But the thing is, past a certain point, it makes more sense to just put areas online gradually than to make big periodic public announcements. Still I wouldn’t rule out a slight delay to completion at the end of 2021, but they are still expanding the 1Gbps service.

    3. Matt says:

      I have a feeling they’ve done this until the merger is done/OK’d. Then they can say these gigabit connections were done “as part of the merger” and they’ll look like investment numbers.

      Though I could be being cynical.

  3. Anthony Goodman says:

    If EE and BT can do it then they should. Hopefully, it will finally mean Virgin comes to my area.

  4. SymetricalAccess says:

    Very dissapointed in this article completely ignoring upload speed.

    It’s dangerous to label services that are so lop sided as “gigabit-capable”. Their not and never will be if we follow like sheep along with the providers rhetoric, whether your being paid to or not, it will only mean poorer conectivity for the foreseeable and a severe limitation on the usefulness of our networks.

    This merger is also bad for the UK. VM don’t give a monkeys. It will only mean worse performance, even worse customer service and higher prices. I will be moving off O2 if this goes through.

    1. JP says:

      I generally agree, there is a monopolization potential, and based on patterns I’ve seen before elsewhere in the world its well on its way to consolidate and control…. but this is what the world wants so I’ll stay clear as long as possible and deal with it as required, which in this country I won’t be needing too.

    2. 125us says:

      What’s the use case for significant upload bandwidth on consumer broadband? Broadband connections are asymmetric (two ‘m’s) because the pattern of use is also asymmetric.

      Adding symmetry adds cost to a network and so will increase price. If there’s no use for that bandwidth all you’ve done is make people’s broadband more expensive for no gain.

    3. JP says:

      That true 125us, while I don’t see the use for symmetrical upstream bandwidth I do agree that more bandwdith on certain packages is justifiable with the way the internet is used at home now.

      I would personally say that additonal upload ‘could’ be sold as required but not sure if that would be a big hit and ISP’s would much rather just sell flagship packages instead.

    4. CarlT says:

      I’m disappointed by your inability to spell ‘symmetrical’, ‘disappointed’ and know the difference between ‘their’, ‘they’re’ and ‘there’ but it is what is is.

      Virgin adjust their upstream speeds as they need to to meet their market. I’ve tried pushing this and you cannot push hard against that customers continue to sign up to their services and upgrade their existing ones.

      Going to take a tad more than someone fixated on symmetrical access while unable to spell the word ‘symmetrical’ to push them towards it. When they need to do it to avoid losing customers they will.

  5. anonymous says:

    Whatever way you look at it, Virgin Media’s upload speeds are pathetic. 52mbps on the 1gbps package, vs 110mbps on Openreach/BT. Even Openreach’s should be around 150-200mbps for upload on 900mbps package.

    People in a world of backups to clouds, working from cloud now. VM just only ever concentrate on download speeds. Hope this changes in the strategy going forward – DocSis 3.1 on the upstream will help – but there has been no dates for that yet.

    1. Winston Smith says:

      What are people backing up to cloud that requires > 50 Mbps upload?

      You’ll be able to tell when upload speeds are important for a significant number of people as the marketing departments of FTTP ISPs will start an advertising numbers battle over them.

    2. Lucian says:

      Agreed. VM uploads are borderline pathetic.
      In the past I moved from them to a “slower” FTTC because of upload speeds.
      Backups, hires multimedia, Photoshop project etc.. they need a proper pipe.

    3. Mr test says:

      @Winston Smith. This month? Wedding video raw footage with pics. That upload was north of 150gb.

      I explicitly stated I wanted the raw files from the videographer and they duley complied. I upload my personal files to the cloud for an off-site copy it files that hold considerable personal value.

      Large uploads are no longer such a rare use case as some seem to think.

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