Virgin Media and O2 are merging in a £31 billion deal to create an entertainment and telecoms company that will provide some serious competition to telecoms giant BT.
O2, which is owned by Spain’s Telefonica, has around 34 million mobile phone customers, in addition to providing the network for Sky Mobile, Tesco Mobile and Giffgaff. Virgin Media, owned by Liberty Global (the largest broadband internet service provider outside the US), has around 6 million broadband and cable TV customers and 3 million mobile users. O2 operates in around 180 countries, has more than 9 million broadband customers (a 36% share of the Broadband market) and around 29 million mobile connections across the group.
It is thought that as well as potentially taking market share from BT, the merger will give Telefonica the opportunity to make some money out of its O2 acquisition, and Liberty Global the opportunity to combine fixed-line and mobile networks to create new areas of value.
O2 (Telefonica chief executive Jose Maria Alvarez-Pallete) said about the deal, “Combining O2’s number one mobile business with Virgin Media’s superfast broadband network and entertainment services will be a game-changer in the UK, at a time when demand for connectivity has never been greater or more critical.”
Mike Fries, the Chief Executive Officer of Liberty Global, highlighted how Virgin Media has fast broadband speeds and an innovative video platform and how O2 is viewed as a reliable mobile operator. Mr Fries said about the merger, “With Virgin Media and O2 together, the future of convergence is here today. We’ve seen the benefit of FMC first-hand in Belgium and the Netherlands. When the power of 5G meets 1 gig broadband, U.K. consumers and businesses will never look back. We’re committed to this market and are right behind the Government’s digital and connectivity goal”.
With a merger of this size, bearing in mind that there has already been a substantial merger between BT and EE in this market in 2016, competition is clearly an issue. However, many of the main telecoms commentators seem to think that the Competition and Markets Authority will allow the merger, but this will, of course, depend on how the deal affects consumers.
Where each of the two merging companies are concerned, it seems that Telefonica gains access to Virgin’s broadband, cable and mobile, thereby giving it the opportunity to make more money out of O2 and Liberty Global gains access to O2’s vast and reliable mobile phone network so that it can combine fixed-line and mobile networks to create new value. Both partners can leverage the synergies and new opportunities to diversify their products and services, thereby providing some serious competition to BT’s dominance and, hopefully, providing new and broader and broader ranges of products, better services, and faster connections to businesses. It has been reported that both companies are looking to invest £10bn over the next five years to make sure that the merger delivers value and this kind of investment is likely to be welcomed by business customers.