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Liberty Global, Telefonica gain final approval for Virgin Media-O2 JV

News

The UK’s Competition & Markets Authority (CMA) gave its final approval for the 50:50 joint venture (JV) to go ahead.

The CMA cleared the transaction without remedies and said all regulatory conditions are met and in alignment with the original terms. The transaction is expected to close by June 1, 2021.

Virgin and O2 sell wholesale services to mobile operators in the UK. Virgin supplies leased lines to mobile operators and O2’s network supports a number of MVNOs including Tesco – run by one of the biggest supermarket chains – which the biggest in the UK.

Competitive concerns

Liberty Global and Telefonica proposed the joint venture in May 2020, to merge Virgin Media’s broadband network, and the mobile operator O2.

Oversight of possible competitive issues passed to the CMA from the European Commission after Brexit.

The CMA was concerned that after the merger, Virgin and O2 could raise prices or reduce the quality of these wholesale services, or withdraw them altogether, thereby affecting the others' quality of service or putting prices up which would be passed on to consumers.

This could make Virgin and O2’s own mobile service more attractive to retail customers, but would ultimately lead to a worse deal overall for UK consumers. Clearly the CMA has satisfied itself about these concerns withouth imposing any remedies.

Plans for the future

A statement from Telefonica at the time said the JV will invest £10 billion in the UK over the next five years and deliver “substantial synergies” of £6.2 billion after integration costs – equivalent to cost, CapEx and revenue benefits of £540 million on an annual basis by the fifth full year after closing the deal.

Virgin Media plans to bring gigabit speeds to more than 15 million homes across its UK network by the end of 2021.

The UK was identified as one of Telefonica’s four principal markets along with Spain, Germany and Brazil in its five-point strategic plan launched in November 2019.

The JV is expected to deliver synergies worth £6.2 billion (€7.19 billion) on a net present value basis after integration costs. The partners reckon they will create a nationwide integrated communications provider with £11 billion in annual revenue.

Senior appointments

Last month the partners appointment of Lutz Schüler as CEO and Patricia Cobian as Chief Financial Officer. Schüler is currently CEO of Virgin Media and Cobian is CFO at O2. Jeanie York will become the JV’s CTO, she is currently CTO at Virgin Media.

Brendan O’Reilly was CTO at O2, but left the company in January to become Global CTO at infrastructure provider BAI Communications.

Mike Fries, CEO of Liberty Global group, and José María Alvarez-Pallete, CEO of Telefonica group, commented: “This is a watershed moment in the history of telecommunications 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.

“We thank the CMA for conducting a thorough and efficient review. Lutz and Patricia are now set to take the reins and launch a national connectivity champion that will connect more people, ignite more businesses back to growth and power more communities for the greater good.”