The Competition and Markets Authority (CMA) has announced this week that it is provisionally allowing the merger of Virgin Media and O2.
The two telecoms giants unveiled their plans to merge back in May 2020, in a move that would put the new company on a similar size and scale in the UK to BT, which is currently the biggest telecoms company in the country.
Costing £31bn and involving tens of millions of UK customers, this merger has been under investigation by the CMA for the past few months. But as of this week, the government authority reached the conclusion that the merger is “unlikely to lead to any substantial lessening of competition in relation to the supply of wholesale services”.
But what does this mean? And how might it affect Virgin Media and O2 customers or other providers? Read on to find out.
How the merger could impact other providers
Virgin Media and O2 are huge companies with very large networks that cover the entire country. These mobile, broadband and TV networks are so extensive that many other providers in the UK actually use their services.
For example, both Vodafone and Three need key parts of Virgin Media’s infrastructure in order to operate, and Sky Mobile and Tesco Mobile’s entire service is based on O2’s network.
This is known as ‘wholesaling’ in the industry. And this is what the CMA wanted to look into, because two wholesalers merging is much more likely to disrupt prices and competition than a deal involving smaller providers.
So the most important thing to note about the CMA’s investigation is that it focused on the mobile network services Virgin and O2 wholesale to other providers, rather than the services they offer directly to customers.
However, even though the investigation focused on wholesaling, the merger could still impact prices and services for customers as well. Let’s take a closer look at how.
Could the merger impact prices?
It’s very unlikely to drive up prices at this stage. If you’re a customer of any of the above providers, you shouldn’t be expecting any immediate price rises related to this new merger.
The CMA’s investigation was to ensure that Virgin Media and O2 wouldn’t raise the price, or reduce the quality, of their wholesale services. Some of their competing providers rely on these services for their entire operation to work, so if their access to them changed, it could affect the way they deliver services to their own customers.
For example, it could directly impact the costs those providers face, and therefore the prices they offer to their customers. And in turn, it could then drive those customers towards Virgin Media and O2 as they seek out cheaper offers.
However, the CMA has provisionally decided that this scenario is very unlikely to happen. This is primarily because the merged company would still face a substantial amount of competition against BT, and other providers are already wholesaling their services at a level that this new company would expect to.
But the decision remains provisional for now, in case new evidence comes to light that shows this isn’t the case.
How could the deal still affect customers?
Ernest Doku, mobiles expert at Uswitch.com, had this to say on the merger’s potential impact on mobile, broadband and TV customers:
“The merger between one of the UK’s biggest mobile firms and a broadband giant has cleared another major hurdle after the competition watchdog gave its provisional go-ahead.
“The watchdog’s investigation found that the merger was unlikely to reduce competition or force up prices, and the ruling clears the way for the combined company to take on the might of BT.
“Assuming there are no unforeseen bumps on the road ahead, the deal could be completed by the summer.
“The merger is likely to stir up the industry, with Vodafone previously showing interest in Virgin Media and Three attempting to snap up O2 five years ago.
“Both the O2 and Virgin Media brands are likely to remain in the short term, but we will have to see what this means for existing products and services like O2 Priorities.
“There’s the potential for the combined firms to make millions of pounds of annual savings, and for consumers this tie-up could mean a greater choice of entertainment and faster speeds.
“However, it’s vital that the combined brands maintain the high standards of service that customers have come to expect.”
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