Sky and Vodafone publish their objections to the Virgin/O2 UK merger

The CMA has published issues statements from Sky and Vodafone submitted as part of its investigation into the proposed merger of O2 UK and Virgin Media.

This phase of the Competition and Markets Authority review invites interested parties to speak now or forever hold their peace. It looks like Sky and Vodafone are the only ones to have raised objections. Sky seems worried about the merged company’s incentive to keep offering a decent wholesale service to MVNOs, while Vodafone just doesn’t like the thought of there being another converged player to deal with.

Here’s the key bit of Sky’s submission:

For the following reasons, Sky considers that post-merger the Merged Entity will have both the incentive and ability to engage in input foreclosure:

Incentive – O2’s incentives to provide wholesale mobile services on favourable terms… will materially reduce as the Merged Entity pursues increased uptake of fixed/mobile bundles benefitting from its converged and vertically integrated operations. According to the Parties’ own public statements, fixed/mobile convergence is a key rationale for the Proposed Merger at a time when interest in such services in the UK is increasing…; and

Ability – the Merged Entity will have the ability to degrade Sky’s mobile service. Pre-Merger, Sky considers that O2 is a willing partner that is incentivised to secure distribution to Sky’s fixed customer base and to resolve any commercial differences. Post-Merger, the change in O2’s incentives means it is uncertain to remain a willing partner and would have less incentive to resolve any commercial differences… it is impossible to provide contractually for all commercial circumstances or market developments over a long-term deal

And here are the concluding paragraphs of Vodafone’s mammoth submission:

Liberty Global and Telefónica obviously don’t agree, but their comprehensive response is so replete with legalese mumbo-jumbo that it’s hard to identify the definitive bits. So we invite you to sift through it yourself if you’re sitting comfortably.

In essence both Sky and Vodafone seem to be objecting to the very concept of a converged operator. Their objections are not entirely without merit, but for them to be taken seriously the CMA would effectively have to conclude that the approval of the BT/EE acquisition was a mistake. Since that seems to have harmed neither the wholesale market nor the consumer, we would expect the CMA to have little sympathy for these objections.