Sky and Vodafone Say Virgin-O2 Merger Risks U.K. Telecom Market

(Bloomberg) -- The tie-up of Liberty Global Plc and Telefonica SA’s U.K. businesses risks harming Britain’s telecom market, Vodafone Group Plc and Comcast Corp.’s Sky said in submissions to the antitrust regulator.

Sky Mobile currently resells wireless services using Telefonica’s O2 network. If Liberty-owned cable operator Virgin Media successfully merges with O2, that relationship could sour, Sky said.

“The merged entity will have the ability to degrade Sky’s mobile service,” Sky said in a heavily redacted response to Britain’s Competition and Markets Authority published Wednesday. Virgin-O2’s motivation to wholesale wireless access to Sky on favorable terms will “materially reduce” as the merged company drives sales to its own integrated businesses, it said.

The CMA is investigating the 31.4 billion-pound ($44.4 billion) cable and wireless deal, which will reshape Britain’s telecom market, and is expected to issue a verdict in the summer. It said last month the probe has honed in on how the merger will impact impact the supply of wholesale broadband

Vodafone will compete with Virgin-O2 in selling mobile and fixed broadband. It said the deal would result in a “substantial lessening of competition” in a separate statement, saying Liberty and Telefonica would have less incentive to share network infrastructure or compete in the wholesale market.

The merged company would be responsible for supplying 80% of the ‘mobile virtual network operator’ market by wholesale revenue, Vodafone said, referring to the business of re-selling mobile phone services over other companies’ networks.

Liberty and Telefonica said the deal is “pro-competitive” in their response to the CMA investigation, and that “the potential effects of a hypothetical foreclosure strategy would be far too small to materially affect competition on the retail mobile market.”

A Sky spokesperson declined to comment beyond the CMA document, while representatives for Liberty Global, Telefonica SA and Vodafone UK were not immediately able to comment beyond the companies’ statements.

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