The UK's Competition and Markets Authority (CMA) will subject the proposed merger of Virgin Media and O2 to an investigation to decide whether the combined mega-entity will hurt the market for certain telecommunications-related products.
Although Virgin Media and O2 are best known for their consumer-targeted stuff (like TV, broadband, and mobile), both do a brisk trade in B2B wholesale services for other competing telecoms providers, including backhaul. The CMA fears that this combined entity may have an incentive to raise prices or reduce the quality of these services, which will in turn will have a direct impact on consumers.
If you're sitting in Germany, Spain, Slovakia or the Czech Republic and wondering how this affects "your" O2, you should note that the merger is only between the UK arm of Spanish telco giant Telefónica (and the UK subsidiary of US-based telecoms conglomerate Liberty Global).
The CMA made its decision after the parent firms both requested that it "fast-tracks" its inquiry into the second phase of their UK offshoots' union. Merging companies have the right to ask the competition watchdog to move to the more in-depth part of a review if the preliminary stage shows the potential for a substantial lessening of competition.
The pair first announced plans for their joint venture in May of this year, with the combined businesses valued at £31bn.
If approved by regulators, the deal promises to drastically shake up the UK telecoms market, and would create the only company in the country besides BT with packages encompassing paid TV, broadband, and a mobile network that isn't an MVNO.
Both parties referred the deal to the European Commission's competition regulator on September 30 of this year. In November, the commission ruled that the UK's CMA should have final say on whether the deal goes through, although it acknowledged the "proposed transaction threatens to affect competition in the telecommunications sector."
Philip Carse, chief analyst at Megabuyte, expects the deal to be approved by regulators, citing historical precedent. "We'd be very surprised... if the CMA sought to block the merger, given that BT's at the time market-shaking acquisition of EE (a similar combo of fixed and mobile businesses) was waved through in early 2016," he said.
Still, Telefónica hasn't always had the easiest time when it comes to mergers, with the European Commission blocking [PDF] a proposed combination of O2 and Three UK in 2016 due to fears it would adversely restrict competition in the mobile market. That judgement was overturned in May of this year after the General Court of the European Union ruled the Commission had failed to prove its argument to the standards required by law.
In a joint statement, Virgin Media owner Liberty Global and O2 UK parent firm Telefónica told The Reg they were "pleased that the CMA has agreed to the parties' request to start a 'fast-track' to Phase 2 process in the UK.
"We look forward to working constructively with the CMA to achieve a positive outcome. We continue to expect the transaction to close around the middle of next year." ®