GAMELOFT

Virgin Media and O2 to merge in £31.4bn deal

David Murphy

Virgin Media and O2 are to merge in a 50-50 joint venture that values the combined company at £31.4bn. The combined entity will offer TV, broadband and mobile packages, posing a major new threat to the likes of BT, Sky and other triple- and quad-play telcos. It will have over 46m video, broadband and mobile subscribers and £11 billion of revenue.

Liberty Global, which owns Virgin Media, and Telefonica, which owns O2, said the deal valued O2 at £12.7bn and Virgin Media at £18.7bn. The companies said they would invest £10bn in the UK over the next five years. They also said the joint venture will become a leading challenger in the B2B space as the combination will accelerate the adoption of converged fixed-mobile services to Virgin Media’s and O2’s existing business customers and offer new services using both companies’ digital skills, networks and product portfolios, such as cloud, big data, Internet of Things and cybersecurity services. The transaction is expected to close around the middle of 2021 and is subject to regulatory approvals.

“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,” said Telefonica CEO, Jose Maria Alvarez-Pallete. “We are creating a strong competitor with significant scale and financial strength to invest in UK digital infrastructure and give millions of consumer, business and public sector customers more choice and value. This is a proud and exciting moment for our organisations, as we create a leading integrated communications provider in the UK.”

For Liberty Global, CEO Mike Fries said: “We couldn’t be more excited about this combination. Virgin Media has redefined broadband and entertainment in the UK, with lightning fast speeds and the most innovative video platform. And O2 is widely recognized as the most reliable and admired mobile operator in the UK, always putting the customer first. 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, UK consumers and businesses will never look back. We’re committed to this market and are right behind the Government’s digital and connectivity goals.”

Ernest Doku, “mobiles expert” at Uswitch.com, said the merger will create a titan of the telecoms industry that will almost certainly throw down a challenge to the most dominant player, BT.

“It’s a natural and complementary fit, with O2 returning to fixed-line broadband and Virgin Media bolstering its mobile proposition,” he said. “Depending on the regulatory merger process, the deal could be completed as early as Summer 2021.

“With Vodafone having courted a tie up with Virgin Media in the past and Three being blocked from acquiring O2 in 2016, it will be interesting to see if today’s news sparks an arms race in the rest of the industry.

“This joining of forces is undoubtedly big news, but the most important thing is that customers will benefit rather than lose out. It’s vital that the combined brands maintain the high standards of customer care and service that people have come to expect.

“Both the O2 and Virgin Media brands are expected to remain in the short-term, but it will be interesting to see what this means for existing customers in terms of products and access to extra services, such as O2 Priorities.

“Immediate steps like Telefonica powering Virgin’s virtual mobile network will eventually generate £110m of annual savings, but duplication means there is the potential for jobs to be cut. Nevertheless, for all customers there is the exciting prospect of greater breadth of entertainment and faster speeds to look forward to.”

And Sophie Lord, executive director of strategy at branding and design agency Landor, said the news was much needed for a slightly tired category. She said: “There is a lot to uncover still, certainly in terms of the deal details. Will this be a multi-platform play, about scale and breadth? Or will the opportunity be pursued to actually create an ownable experience that is missing from the platforms at the moment? Will it be a technology company, an innovation company, or simply entertainment?

“Certainly 5G needs a new narrative, and perhaps this is the brand to own not just the technology, but the experience that it can bring. These two great brands have a synergistic quality to them – Virgin Media famous for ‘fast’ and irreverence (if rather lacking any real personality), O2 famous for entertainment and service.

“Let’s hope they become more than the sum of their parts, and not just a ‘holding’ company to its many platforms – if they manage this then we’ll all be benefitting, rather than the just the deal makers and brokers.”

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