Watchdog says new telecoms giant will still have competition from rivals
The Competition and Markets Authority launched an investigation into the tie-up in December due to concerns that customers may lose out.
It was feared that the merged company’s powerful position would allow it to make its offering more appealing by reducing the quality or raise the price of services it provides to other mobile and internet firms.
Sky Mobile, one of a number of operators which pays O2 to use its network, had said the merger would damage its business.
After a five-month probe, the CMA decided that the newly merged telecoms giant would still have an incentive to keep prices and services competitive.
It pointed to other mobile network providers that offer similar services and BT Openreach, which rents fixed lines to broadband companies.
The watchdog’s decision is provisional and a final ruling is expected to be published before the end of May.
The merger will bring together 34 million customers on O2’s mobile network with Virgin Media and Virgin Mobile’s 5.3 million broadband, pay-TV and mobile users.
CMA panel inquiry chairman Martin Coleman 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.”
The CMA’s so-called Phase 2 investigation was launched in December following a request from the companies for the watchdog to give the deal the green light quickly.
The CMA said at the outset that it was not concerned about overlapping retail services such as mobile, due to the small size of Virgin Mobile, but instead focused on potential wholesale services concerns.
Virgin provides wholesale leased lines to mobile companies, such as Vodafone and Three, which they use to connect key parts of their network.
Similarly, O2 offers mobile operators such as Sky and Lycamobile, which do not have their own mobile network, use of the O2 network to provide their customers with mobile phone services.
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.
If this were to happen, the quality of these other companies’ mobile services could suffer and – if wholesale price increases were passed on by these companies to their customers – their retail prices could go up.
“This might make Virgin and O2’s own mobile service comparatively more attractive to retail customers, but would ultimately lead to a worse deal for UK consumers,” the CMA said.
However, the watchdog concluded that this was not the case because the costs of renting this infrastructure is a relatively small part of mobile operators’ overall costs so it’s unlikely that prices would rise enough to impact consumers.
There are also other players in the market offering the same services, the CMA said.
The deal values Virgin Media, which is owned by Liberty Global, at £18.7bn and Telefonica’s O2 at £12.7bn.
At the time the deal was announced, the companies said it would create a “full converged platform” for customers, which will mean an investment of £10bn in the UK over the next five years.