- CMA takes charge of investigation into Liberty Global and Telefónica’s UK merger plans as EC backs off.
- Operators acknowledge need for review, and urge the watchdog to fast-track the case onto Phase 2 of the process.
- Hopes that the deal could be cleared by mid-2021 persist.
After months of wrangling between UK and European competition authorities, the European Commission (EC) decided to cede control of the investigation into the proposed Virgin Media (VM) and Telefónica UK (O2 UK) joint venture to the UK’s Competition and Markets Authority (CMA).
The CMA has been lobbying for control of the review since the proposed merger of the Liberty Global- and Telefónica-owned assets was announced earlier in 2020, although both parties to the deal have been seeking an EC decision, on the expectation that the approval process would be faster (Telefónicawatch, #143, #144, and #147). Telefónica and Liberty Global are now taking steps to speed up the decision-making process.
Obvious competition questions for CMA to answer
The EC’s decision came as it completed its initial assessment of the proposed merger, which found that it could threaten competition in the UK telecoms market in relation to the provision of retail and mobile wholesale services, as well as leased lines. These potential barriers to competition were initially identified in the CMA’s submission to the EC and a detailed review of the potential impacts was always expected.
Which body would oversee that review had been somewhat less clear, with the deal being announced during the Brexit transition period, and final clearance not expected to take place until after the UK’s European Union departure. The terms of the Withdrawal Agreement, signed in 2019 by the UK and European Union, indicated that the EC would effectively have first refusal on handling the process, but it has decided that in this instance discretion may be the better part of valour.
The two bodies have been cooperating closely, according to the Commission, which said it believed that “[the CMA] is already well informed on the elements of this case and the investigation will continue uninterrupted”.
Liberty and Telefónica now on the fast track
Telefónica and Liberty Global management had been pushing for an EC decision, but had hedged by expressing confidence that the deal could be quickly sealed following a review by the UK authority too (Telefónicawatch, #147). Now that the CMA role has been confirmed, the two groups have requested a fast track decision, and the CMA appears willing to play ball.
In accordance with CMA guidance on merger investigations, a date of 1 February 2021 has been set for a decision of Phase 1 of its investigation. This phase usually determines whether further consideration of significant risks to competition linked to the proposed deal need to be considered, and can take up to 40 working days. However, Liberty Global and Telefónica have requested an expedited move to Phase 2, based on an assumption that the scale of the deal means that clearance in Phase 1 without further review is unlikely.
The competition authority is expected to make a decision on whether Phase 2 will be brought forward before Christmas 2020. A Phase 2 investigation can take up to 24 weeks, with the option for the CMA to extend by a further eight weeks. At the end of Phase 2, the deal can be rejected, fully cleared, or the parties could be given a further twelve weeks (with potential for a six-week extension) to implement remedial measures that would address CMA objections to the merger. At this stage, neither Telefónica nor Liberty Global have submitted any potential concessions, and appear confident that remedies will not be necessary as the predominantly fixed-line VM and mobile-only O2 come together.
An invitation to comment on the proposed merger was opened for just five working days in November 2020, following the launch of the CMA’s investigation. The truncated period is intended to help facilitate the potential fast-forward to a Phase 2 investigation. The authority noted that should the investigation move to Phase 2, there would be a more substantial period during which interested parties could comment on the proposals.
As the news of the switch from the EC to CMA emerged, both Telefónica and Liberty Global reiterated confidence that the deal could be completed by mid-2021.