The Competition and Markets Authority has given the £ 31 billion transaction a tentative thumbs up
The gigantic £ 31 billion merger of Virgin Media and O2 has cleared its first major hurdle, and the Competition and Markets Authority (CMA) has “tentatively” approved the deal for this summer. The CMA opened an in-depth investigation when Virgin Media and O2 parent companies Liberty Global and Telefonica respectively announced the deal in May 2020.
The CMA had raised concerns that Virgin Media and O2’s 50:50 joint venture would result in higher prices for customers and have anti-competitive effects on wholesale markets such as Mobile Virtual Network Operators or MVNOs. These are cellular networks that do not have or operate their own masts. Tesco Mobile is an MVNO that uses the infrastructure of O2, for example. The CMA feared that the mega-merger could have an impact on MVNO’s business models – or could result in customers of these services being billed for more than just switching to Virgin Media or O2.
However, the CMA has now concluded that “the deal is unlikely to result in a significant reduction in competition for the provision of wholesale services”. This is only a preliminary decision and the CMA is now asking interested parties to respond to their preliminary findings by 5:00 p.m. on May 5, 2021. However, it is likely that something will be addressed that will change the outcome.
Martin Coleman, CMA Panel Inquiry Chair, said: “Given the impact this deal could have in the UK, we needed to look into this merger closely. A thorough analysis of the evidence gathered during our Phase 2 investigation showed that the deal is unlikely to result in higher prices or decreased quality of mobile services – which means customers should continue to benefit from strong competition. “
What does this colossal deal mean for existing Virgin Media and O2 customers if the deal gets a (preliminary) thumbs up from the UK regulator?
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For starters, this could mean a pretty sizeable investment in the newly merged Virgin Media-O2.
Lutz Schuler, who currently heads Virgin Media in the UK but has been named Chief Executive Officer (CEO) of the merged Virgin Media-O2 company, pledged to invest £ 10 billion in the new company over the next five years. In addition, Schuler has promised to connect an additional million households to Virgin Media’s gigabit-enabled broadband “within 12 months of the merger.”
Virgin Media had already promised to hit a target of 15 million households by the end of this year, so this additional commitment could bring the total to 16 million by the end of 2021.
The merged company has previously spoken of a “goal to accelerate investments” and “in the coming years” to connect an additional 7 million households to Gigabit-enabled broadband. It’s unclear exactly where these homes would be – but smaller towns and villages could see these future-proof connections come online. With millions of people moving from smaller city center apartments to rural houses with gardens, these upgrades could create entirely new transportation hubs outside of the largest cities.
Excitingly, these high-speed fiber connections couldn’t just be useful to Virgin Media customers. This is because we have pointed out several times that the newly merged company Virgin Media-O2 would like to become a real competitor to Openreach and enable third-party companies to use its broadband infrastructure. For those unfamiliar with Openreach, Openreach, a subsidiary of BT, manages a large chunk of the UK’s landline and broadband infrastructure, including internet packages from BT, Sky, EE, TalkTalk, Plusnet, Shell Energy, Vodafone, Post and more.
It is true that there are some broadband startups that use their own full fiber cables to offer breathtaking speeds, such as HyperOptic, Community Fiber, GigaNet and more. However, these remain quite localized. While some are expanding rapidly, they don’t offer nearly the same footprint as BT, Sky, and TalkTalk.
While broadband companies with the greatest coverage are able to compete on prices, packages, and freebies, they are unable to beat each other in terms of speed because they all rely on the same cables from Openreach. And here Virgin Media-O2 would like to offer something new.
Openreach currently has around 4.5 million rooms connected to its next-generation gigabit-enabled fiber optic broadband. That’s pretty meager compared to the 16 million premises that Virgin Media plans to add gigabit-enabled cables over the next six months.
And now we have our first indication that those 16 million households may soon be able to buy their broadband plans from other companies, including established brands like Sky and TalkTalk, as well as brand new companies, rather than just Virgin Media. A new request to regulator Ofcom for Code Powers from Liberty Property Co II Limited, a subsidiary of Liberty Global – the parent company of Virgin Media Broadband and Television in the UK – shows this from the brilliant team at internet-obsessed blog ISPreview It intends to “the wholesale products from Virgin Media ”to facilitate“ building and operating a broadband network ”across the UK.
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Ofcom intends to consult this new request by May 10, 2021. Some tipsters suggest that Sky will be one of the first partners to use Virgin Media’s super-fast network. The company has already announced ambitions to offer its Sky Q television package over a broadband connection. So you don’t have to drill a satellite dish outside of your home to adjust to the selection of paid channels, films and sports equipment. However, those plans have fallen silent since it was first announced in 2017. With millions of households connected to gigabit broadband (which is about 15 times faster than the average home broadband connection in the UK), Sky could potentially realize its four-year plan soon.
This multi-billion dollar merger isn’t just about breathtaking broadband speeds, however. Super-fast 5G networks are widely expected to become essential for many customers in the coming years thanks to fast downloads and low latency, which many believe will accelerate remote work, augmented reality (AR) applications and self-driving cars . Virgin Media is currently only missing in the 5G department. Despite its impressive broadband network, TV kit with access to Sky Cinema and 4K Ultra HD streaming, it does not have its own mast network. Virgin Media has signed a deal with Vodafone to piggyback its 5G network so its customers don’t miss a thing, but it’s a sticking point – not a long-term plan.
With the O2 merger now set to take place in the coming weeks, Virgin Media will have its own 5G infrastructure across the UK thanks to O2. Virgin Media could also use the 5G network to provide home WiFi for people who are not currently connected via the fiber optic broadband infrastructure. In other words, Virgin Media customers should see more options for 5G in the event of a merger.
Virgin Media has an incentive to entice its broadband or television customers to move away from competing providers of these other services. We should therefore expect more offers when customers move their SIM-only tariff or their monthly phone contract internally. This could be a great way for customers with phone, television, and broadband contracts with three different companies to save some money – and make their monthly statements a little easier to read.
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And what do O2 customers get out of it?
Well, both parent companies have promised that the merger will result in a sharp increase in investments in the cellular network. A commitment of £ 10 billion will be made over the next five years. If you are ever faced with low signal in certain areas, inconsistent 5G connectivity, or other issues, hope that a bit of money will go into solving those issues. If you’re happy with your current SIM-only or phone plan but find that download speeds and 4G and 5G coverage are slowly increasing over the coming months and years, that’s not a bad thing.
As mentioned above, it is possible for the two companies to leverage each other’s strengths to compete with the competition. For example, O2 can stream content from your Virgin Media TV V6 box while on the move without counting towards your monthly mobile data allowance, for example. This would be a clever way to entice those who are already paying for the TV to move their cellular plan internally.
We have already seen that competitors use this type of incentive. BT’s own mobile network EE currently offers a three-month free subscription to BT Sport. If you look at the EE network, you will not be billed for any of the data used to stream matches). There is also a “Smart Benefit” for some customers with monthly payments and only for SIM cards, which bundles a free BT Sport subscription for the duration of your contract.
Aside from the potential freebies and perks for existing Virgin Media and O2 customers, this could also be a great career change opportunity. That’s because parent companies Liberty Global and Telefonica are committed to creating 4,000 jobs and 1,000 apprenticeships when they get final regulatory approval from the CMA.