Virgin Media and O2 threaten BT with £31bn mega-merger

Virgin Media and O2 have unveiled plans for a mega-merger to create a 31 billion media and telecoms giant. Picture: Virgin Media

Parent groups Liberty Global and Telefonica – the owners of Virgin Media and O2 respectively – had revealed on Monday that they were in discussions over a possible combination.

The tie-up between the pair will create a major rival for BT, which owns mobile network EE. It is set to bring together O2’s 34 million customers on its mobile network with Virgin’s 5.3 million broadband, pay-TV and mobile users.

In a statement, the companies said they will create a “full converged platform” for customers and will invest £10bn in the UK over the next five years. Some £6.2bn worth of cost-saving synergies are likely to result from the 50-50 joint venture, sparking fears over possible heavy job losses.

The deal, which is expected to close in the middle of 2021 subject to regulatory approvals, values Virgin Media at £18.7bn and O2 at £12.7bn.

Mike Fries, chief executive of Liberty Global, 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 recognised as the most reliable and admired mobile operator in the UK, always putting the customer first.”

O2, which also provides the network for GiffGaff, Tesco Mobile and Sky Mobile, is the UK’s largest phone company.

Jose Maria Alvarez-Pallete, chief executive of Telefonica, said: “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.

“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.”

Sophie Lord, executive director of strategy at Landor, said: “Virgin Media has made no secret that it wanted to take on BT, bringing the Virgin challenger mindset back – and it seems this is the deal to do it.

“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 benefiting, rather than just the deal makers and brokers.”

Dan Howdle, consumer telecoms analyst at UK broadband and mobile comparison site Cable.co.uk, said: “Although the news has been brewing for some time now, [this] announcement is still likely to put the wind up competitors in both the broadband and the mobile space, particularly BT.

“Unlike when O2 attempted to join forces with Three in 2015 but was blocked by the European Commission, I don’t expect there to be any major hurdles to this deal going through.

“After all, with BT’s purchase of EE given the all-clear in 2016, it’s difficult to see how a case could be made to block it.

“Virgin Media already has the fastest widely available UK broadband network, but is hampered by more limited availability than providers using BT-owned Openreach,” he added.

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