Anticipated joint venture between Liberty Global Plc and Telefónica S.A. Final report 20 May 2021 © Crown copyright 2021 You may reuse this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-government- licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected]. Website: www.gov.uk/cma Members of the Competition and Markets Authority who conducted this inquiry Martin Coleman (Chair of the Group) Margot Daly Cyrus Mehta John Thanassoulis Chief Executive of the Competition and Markets Authority Andrea Coscelli The Competition and Markets Authority has excluded from this published version of the report information which the Inquiry Group considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified information: considerations relevant to disclosure). The omissions are indicated by []. Some numbers have been replaced by a range. These are shown in square brackets. 1 Contents Page Summary .................................................................................................................... 6 The reference .................................................................................................. 6 Industry background ........................................................................................ 7 The Parties ...................................................................................................... 8 The transaction ................................................................................................ 9 Counterfactual ............................................................................................... 10 The relevant merger situation ........................................................................ 10 Introduction to the competitive assessment ................................................... 11 Wholesale leased lines .................................................................................. 11 Wholesale mobile .......................................................................................... 16 Our conclusion ............................................................................................... 21 Decision .............................................................................................................. 21 Findings ...................................................................................................................... 1 1. The reference ....................................................................................................... 1 2. Industry background ............................................................................................. 2 Introduction ........................................................................................................... 2 Fixed telecoms ...................................................................................................... 2 Recent industry developments ........................................................................ 2 Fixed network wholesale services ................................................................... 4 Mobile backhaul ............................................................................................... 5 Fixed network providers .................................................................................. 6 Regulation of fixed telecoms............................................................................ 7 Mobile telecoms .................................................................................................... 8 Recent industry developments ........................................................................ 8 Mobile network operators (MNOs) ................................................................. 10 MNO network coverage and topology ........................................................... 10 MVNOs .......................................................................................................... 11 Development of 5G technology and services ................................................ 12 Fixed-mobile convergence ............................................................................ 13 3. The Parties and the transaction .......................................................................... 16 The Parties ......................................................................................................... 16 Liberty Global – Virgin ................................................................................... 16 Telefónica – O2 ............................................................................................. 19 The transaction ................................................................................................... 22 Events leading up to the transaction .............................................................. 25 Rationale for the transaction .......................................................................... 25 Valuation ....................................................................................................... 29 4. Relevant merger situation ................................................................................... 30 Introduction ......................................................................................................... 30 Enterprises ceasing to be distinct ....................................................................... 30 Jurisdiction test ................................................................................................... 32 Turnover test ................................................................................................. 32 Share of supply test ....................................................................................... 33 Conclusions on relevant merger situation ........................................................... 34 5. Counterfactual..................................................................................................... 34 The CMA’s framework for assessment of the counterfactual .............................. 34 Views of the Parties and third parties on the counterfactual ............................... 35 Liberty Global views and evidence ................................................................ 35 2 Telefónica views and evidence ...................................................................... 36 Our assessment ............................................................................................ 37 Conclusion on the counterfactual ........................................................................ 38 6. Introduction to the competitive assessment ........................................................ 38 Activities of the Parties and relationships between them .................................... 38 Supply of wholesale leased lines to MNOs .................................................... 41 Supply of wholesale mobile services to MVNOs............................................ 43 Horizontal overlaps ........................................................................................ 45 Other vertical relationships ............................................................................ 47 7. Wholesale leased lines: market definition and background ................................ 48 Background ......................................................................................................... 48 Introduction to leased lines ............................................................................ 48 Suppliers of mobile backhaul ......................................................................... 55 How MNOs procure mobile backhaul ............................................................ 61 Current supply relationships .......................................................................... 62 The role of Ofcom’s regulatory conditions ..................................................... 64 Market definition.................................................................................................. 69 Product market definition ............................................................................... 70 Geographic market definition ......................................................................... 76 Theory of harm.................................................................................................... 79 8. Wholesale leased lines: competitive assessment ............................................... 80 Introduction ......................................................................................................... 80 Comparison between using dark fibre and active leased lines in the access layer ........................................................................................................................... 82 Dark fibre compared to active services: an overview ..................................... 83 The significance of the differences between dark fibre and active products .. 86 Is the significance of the differences between dark fibre and active products likely to change in the future? ....................................................................... 87 Comparison between the cost of dark fibre from Virgin and BT’s active products in the access layer at current prices .............................................