LONDON (Reuters) -Britain’s competition watchdog said on Wednesday it has provisionally cleared a merger between broadband company Virgin Media and Telefonica’s UK mobile network O2 after an investigation into the $38 billion deal’s potential impact.

The Competition and Markets Authority said that its investigation had focused on whether the deal was likely to result in a substantial reduction of competition in the supply of wholesale mobile services and concluded this was unlikely.

“A thorough analysis of the evidence gathered during our phase 2 investigation has shown that the deal is unlikely to lead to higher prices or a reduced quality of mobile services – meaning customers should continue to benefit from strong competition,” said Martin Coleman, CMA Panel Inquiry Chair.

The regulator said it believed there was sufficient competition within the market to prevent either player raising wholesale prices in broadband or mobile to the detriment of rivals who use its infrastructure.

Virgin Media owner, Liberty Global Plc, and Telefonica agreed in May last year to merge the British businesses to create a powerhouse in mobile and broadband to take on market leader BT Group.

The two sides set out earlier this month its new management team, with the Virgin Media boss Lutz Schuler becoming chief executive.

(Reporting by Iain Withers; Editing by Dhara Ranasinghe and Sarah Young)