The Competition and Markets Authority have given the £31 billion merger a provisional thumbs up
The gargantuan £31 billion merger between Virgin Media and O2 has passed its first major hurdle, with the Competition and Markets Authority (CMA) “provisionally” clearing the deal to go ahead this summer. The CMA launched an in-depth investigation when the deal was announced by Virgin Media and O2 parent companies Liberty Global and Telefonica, respectively, back 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 an anti-competitive impact on wholesale markets, like Mobile Virtual Network Operators or MVNOs. These are mobile networks that don’t own or operate their own masts. Tesco Mobile is an MVNO that uses O2’s infrastructure, for example. The CMA was concerned that the mega-merger could impact MVNOs business models – or result in customers of those services being charged more than simply moving to either Virgin Media or O2.
However, the CMA has now concluded that “the deal is unlikely to lead to any substantial lessening of competition in relation to the supply of wholesale services”. This is only a provisional ruling, and the CMA is now requesting interested parties to respond to their provisional findings by May 5, 2021 at 5pm. However, it seems likely anything will be raised 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 scrutinise this merger closely. A thorough analysis of the evidence gathered during our phase 2 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.”
So, with the deal getting a (provisional) thumbs up from the UK regulator, what will this colossal deal mean for existing Virgin Media and O2 customers?
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The deal could see an extra one million homes fitted with gigabit-capable broadband this year alone
Well, first of all, it could mean a pretty sizeable investment into the newly-merged Virgin Media-O2 company.
Lutz Schuler, who currently leads Virgin Media in the UK, but has been named the Chief Executive Officer (CEO) of the merged Virgin Media-O2 company, pledged to invest £10 billion in the new venture over the next five years. Not only that, Schuler has promised to connect an extra one million homes to Virgin Media’s gigabit-capable broadband “within 12 months of the merger closing” too.
Virgin Media had already pledged to reach a target of 15 million homes by the end of this year, so this extra commitment could bring the total to 16 million by the end of 2021.
The merged company has previously spoken about an “ambition to accelerate investments” and connect 7 million more homes to gigabit-capable broadband “in the coming years.” It’s unclear exactly where these homes would be – but it could see smaller towns and villages see these future-proofed connections start to come online. With millions of people moving away from smaller city-centre apartments for rural homes with gardens, these upgrades could create all-new commuter hubs outside the biggest cities.
Excitingly, these super-speedy fibre connections could be useful to more than just Virgin Media customers. That’s because we’ve had multiple indications that the newly-merged Virgin Media-O2 venture wants to become a true competitor to Openreach and allow third-party companies to use its broadband infrastructure. For those who don’t know Openreach, a subsidiary of BT, manages a large swathe of the UK’s landline and broadband infrastructure, including internet packages from BT, Sky, EE, TalkTalk, Plusnet, Shell Energy, Vodafone, Post Office, and more.
While there are some broadband start-ups that leverage their own full-fibre cables to offer breathtaking speeds, like HyperOptic, Community Fibre, GigaNet, and more, these remain quite localised. While some are rapidly expanding, they don’t offer anywhere near the same footprint as BT, Sky and TalkTalk.
But while broadband companies with the most coverage are able to compete on price, bundles, and freebies …since they are all reliant on the same cables from Openreach, they’re unable to beat one another on speed. And that’s where Virgin Media-O2 wants to offer something new.
Openreach currently has some 4.5 million premises connected with its next-generation gigabit-capable fibre broadband. That’s pretty paltry compared to the 16 million premises that look set to be hooked-up to gigabit-capable cables from Virgin Media in the next six months or so.
And now we have our first clue that those 16 million homes might soon be able to buy their broadband packages from other companies, including established brands like Sky and TalkTalk as well as all-new ventures, instead of just Virgin Media. Spotted by the brilliant team at internet-obsessed blog ISPreview, a new request to regulatory body Ofcom for Code Powers from Liberty Property Co II Limited, a subsidiary of Liberty Global – the parent company of Virgin Media broadband and telly in the UK, indicates that it intends to “utilise Virgin Media’s wholesale products” to facilitate the “construction and operation of a broadband network” across the UK.
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Ofcom intends to consult on this new request until May 10, 2021. Some tipsters suggest one of the first partners to leverage Virgin Media’s super-fast network will be Sky. The company has previously announced ambitions to offer its Sky Q telly bundle over a broadband connection – so there’s no need to drill a satellite dish to the outside of your home to tune-in to its selection of paid-for channels, movies and sports fixtures. However, these plans have gone quiet since the initial announcement back in 2017. With millions of home connected with gigabit-capable broadband (that’s around 15x faster than the average home broadband connection in the UK right now) Sky might soon be able to realise its four-year-old plan.
But this multi-billion merger isn’t simply about eye-watering broadband speeds. Superfast 5G networks are widely expected to become essential to many customers in the coming years, thanks to speedy downloads and low-latency which many believe will accelerate remote working, Augmented Reality (AR) applications, and self-driving cars. As it stands, Virgin Media is solely missing in the 5G department. Despite its impressive broadband network, TV kit with access to Sky Cinema and 4K Ultra HD streaming, it doesn’t have its own network of masts. Virgin Media has struck a deal with Vodafone to piggyback on its 5G network so that its customers don’t miss out, but it’s a sticking plaster – not a longterm plan.
But with the O2 merger now set to go ahead in the weeks ahead, Virgin Media will have its own 5G infrastructure across the UK, thanks to O2. Virgin Media could also leverage the 5G network to power home Wi-Fi to people who aren’t currently connected by its fibre broadband infrastructure. In other words, Virgin Media customers should see more options around 5G should the merger go ahead.
Virgin Media has an incentive to tempt its broadband or telly customers to move away from rival suppliers for these other services, so we should expect to see more deals when customers move their SIM-only plan or pay-monthly phone contract in-house. That could be a great way for customers with phone contracts, television, and broadband with three different companies to save some dosh – and make their Direct Debits a little simpler to read on the monthly statement.
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And what do O2 customers get out of all this?
Well, both parent companies have promised the merger will trigger a big increase in investment in the mobile network, with £10 billion promised over the next five years. If you’ve ever struggled with low signal in certain areas, patchy 5G connectivity, or other issues, you’d hope that lump of cash would go some way to solve those issues. If you’re happy with your current SIM-only or phone contract, but notice 4G and 5G download speeds and coverage slowly creep-up in the coming months and years, that’s no bad thing.
As mentioned above, it’s possible we will see the two companies leverage one another’s strengths to compete with rivals. So, O2 could offer streaming of content from your Virgin Media TV V6 box when out-and-about without counting towards your monthly mobile data allowance, for example. This would be a clever way to tempt those who already pay for the telly to move their mobile contract in-house.
We’ve already seen rivals deploy these types of incentives – BT-owned mobile network EE is currently offering a three-month free subscription to BT Sport (and when watching on EE’s network, you won’t be charged for any of the data used to stream matches). There’s also a “Smart Benefit” available for some pay-monthly and SIM-only customers that bundles a free BT Sport subscription for the length of your contract.
Aside from the potential freebies and perks for existing Virgin Media and O2 customers, it could also be a good opportunity for a career change. That’s because parent companies Liberty Global and Telefonica have pledged to create 4,000 jobs and 1,000 apprenticeships if they receive the final regulatory approval from the CMA.