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Virgin and O2 owners confirm plans for £31bn merger

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Virgin Media owner Liberty Global and O2 owner Telefonica have confirmed that they are in talks to combine to form a £31bn telecoms giant.

The possible merger would bring together O2’s 34 million mobile network customers (including Tesco Mobile and Giffgaff users) with Virgin’s 5.3 million broadband, TV and mobile users.

The deal values Virgin Media at £18.7bn and O2 - the UK’s largest phone company - at £12.7bn.

The deal - if it goes ahead - will be the biggest in the UK telecommunications industry since BT bought EE in 2015 for £12.5bn. It would create one of Europe’s largest telecommunications companies and a monumental rival for EE owner BT, leaving Three and Vodafone as the only mobile network operators without their own consumer broadband networks.

In a statement, Liberty Global and Telefonica said that they would create a “full converged platform” for customers and would invest £10bn in the UK over the next five years. They estimate that the 50-50 joint venture would deliver £6.2bn in savings.

The deal could close in mid-2021, subject to regulatory approval.

“We couldn’t be more excited about this combination,” said Mike Fries, CEO of Liberty Global. “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.”

Telefonica CEO Jose Maria Alvarez-Pallete commented: “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.”

Regulatory approval cannot be taken for granted, with Liberty Global and Telefonica needing to convince the CMA that the merger will indeed offer the public “more choice and value”. An attempted sale of O2 to Three owner CK Hutchison for £10.3 in 2015 was blocked by the European competition commissioner over concerns that the deal would leave just three mobile network operators in the UK.

“This deal has been mooted for a while and makes a lot of sense given the trend toward fixed and wireless network convergence,” said communications market analyst Matthew Howett, speaking to Bloomberg. Howett said that a deal bringing together a mobile network operator and a fixed-line operator is more likely to be approved by the CMA than a deal between two mobile network operators.

“It doesn’t reduce competition in mobile and preserves the four-player market that Ofcom and others have been committed to.”

In addition to assuaging competition concerns, Liberty Global and Telefonica will need to address some other likely complications. Most notably, Virgin Media – which pioneered the mobile virtual network operator (MVNO) model and offers a mobile service on BT’s network – is due to switch to Vodafone as its mobile network provider next year. Virgin and Vodafone struck the MVNO agreement in 2019, which is due to run until 2026.

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