Virgin Media and O2 to join in powerhouse £31.4bn deal in the UK

Geneva/London — Telefonica and Liberty Global won approval to combine their UK operations O2 and Virgin Media, clearing the way for the creation of a £31.4bn powerhouse that will reshape the nation’s phone markets.

The tie-up was scrutinised over concerns the combination could lead to higher prices and poorer wholesale services, the UK  Competition and Markets Authority (CMA) said on Thursday. The CMA concluded, however, this was not likely.

“After looking closely at the deal, we are reassured that competition among mobile communications providers will remain strong and it is therefore unlikely that the merger would lead to higher prices or lower quality services,” Martin Coleman, CMA panel inquiry chair, said in the statement.

Telefonica, O2’s Spanish parent company and John Malone’s Liberty Global had been looking to strike a deal for years, with Liberty’s Virgin Media a long-standing favourite deal-target gossip topic of European telecom bankers. The companies valued the deal at £31.4bn when it was announced a year ago.

Billionaire “cable cowboy” Malone and Telefonica said they now expect the deal to be completed on June 1. Virgin Media’s CEO Lutz Schüler and O2’s CFO Patricia Cobian will take up those roles at the combined group. No decisions about branding have been announced yet.

“This is a watershed moment in the history of telecoms in the UK as we are now cleared to bring real choice where it hasn’t existed before, while investing in fibre and 5G that the UK needs to thrive,” Mike Fries, CEO of Liberty Global, and José Maria Álvarez-Pallete, CEO of Telefonica, said in a statement.

The joint venture will merge national mobile company O2 with Virgin Media’s cable and fibre connections, which cover about half of the UK, mounting a fiercer challenge to former state monopoly BT Group.

The combined entities would take about 34% of Britain’s telecom service revenues between them, eclipsing the current number one operator BT Group, according to research from Goldman Sachs last year.

Despite their combined clout, competition in the UK leased-line market is sufficiently robust, the CMA concluded: “This means the merged company will still need to maintain the competitiveness of its service or risk losing wholesale custom.”

Similarly, there are enough other providers of mobile networks for telecoms firms to use, the CMA said, “meaning O2 will need to keep its service competitive with its wholesale rivals to maintain this business”.

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