The telecom market leader of Britain BT will now be challenged by the merger of broadband company Virgin Media and Telefonica’s UK mobile network O2 after the competition regulator of the country cleared the merger deal between the two companies worth $44 billion. The review of the deal was being done for months now.
The tow companies – Virgin owner Liberty Global and Spain’s Telefonica had decided to merge the two companies about a year back. The latest decision by the regulator was described by the two companies as “a watershed moment in the history of telecommunications in the UK”.
“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 of Britain’s Competition and Markets Authority (CMA) said.
The merger values O2 at 12.7 billion pounds and Virgin Media at 18.7 billion pounds and the value of the new company that would be formed by the merger would be valued at 31.4 billion pounds ($44.4 billion) including debt. The deal is expected to be completed by June 1.
“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,” Liberty Global CEO Mike Fries and his Telefonica counterpart José Maria Alvarez-Pallete said in a joint statement following the CMA approval.
The two companies said that they expect the annual revenue of the new combined company to be 11 billion pounds. The two companies will have equal share in the merged entity and will be led by Virgin Media boss Lutz Schüler.
“For Telefonica, that’s a big deal done,” one financial source told the media. “They’re buying Oi in Brazil and need to finalise that, but this would mean consolidating major presence in the UK, Germany, Brazil and Spain.”
The major concerns of the CMA while reviewing the merger was about the possible impact of the deal on the mobile consumers and the British mobile market considering the fact that both the companies were ion the business of selling wholesale services to other operators.
However last month, a provisional approval to the deal was given by the regulator following its conclusion that despite the merger there would be enough completion in the market for consumers because of the presence of other strong players that also offering very similar and rival services such as BT and Vodafone.
In recent times, debt has been an issue for Telefonica which has been selling assets to reduce its debt burden which was at 35.8 billion euros at the end of the first quarter of the current year. The money generated from the sale of assets is also being used by the company to fund an upgrade to next generation 5G networks while also tackling the impact of Covid-19 pandemic just like its European rivals.
(Adapted from FinancialPost.com)