Virgin and O2 clinch UK approval for US$44.4b deal

[LONDON] Telefonica and Liberty Global won approval to combine their UK operations O2 and Virgin Media, clearing the way for the creation of a US$44.4 billion 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 Competition and Markets Authority said Thursday. The CMA concluded, however, that was not likely.

"After looking closely at the deal, we are reassured that competition amongst 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 chairman, said in the statement.

Telefonica SA, 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 longstanding favorite deal-target gossip topic of European telecom bankers. The companies valued the deal at £31.4 billion (S$59.1 billion) when it was announced a year ago.

Mr Malone and Telefonica said they now expect the deal to be completed on June 1. Virgin Media's chief executive officer Lutz Schueler and O2's chief financial officer 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 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," Mike Fries, CEO of Liberty Global, and José Maria Alvarez-Pallete, CEO of Telefonica, said in a statement.

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The joint venture will merge national mobile company O2 with Virgin Media's cable and fiber 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 per cent of Britain's telecom service revenues between them, eclipsing the current No 1 operator BT Group, according to research last year from Goldman Sachs.

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," the regulator said.

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