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A tie-up between two major players in the UK telecoms and media sector could be on the cards.
On Monday (4 May), Telefónica, the Spanish company that owns UK telecoms provider O2, confirmed that it is in talks to merge the business with Virgin Media.
The Spanish telecoms firm said that it is currently in the “negotiation phase” and that nothing is guaranteed.
If the two companies do come to an agreement, it would create one of the UK’s largest telecoms and media companies and would potentially be a serious rival for BT, which also owns EE.
Telefónica previously attempted to sell O2 to Hong Kong’s CK Hutchison, owner of Three, in a £10bn deal. However, that was blocked by regulators in 2016, with the European Commission saying that the sale of O2 would leave just three major mobile phone operators in the UK.
Writing in the Guardian, financial editor Nils Pratley suggested that a deal with Liberty Global, which owns Virgin Media, may be the “next best option” for Telefónica after the previous blow from regulators.
A potential merger
In a statement, Telefónica said that it will communicate the necessary information to the markets if it reaches a “satisfactory agreement”. Meanwhile, Virgin Media UK declined to comment.
O2 currently provides the network for Tesco Mobile, Giffgaff and Sky Mobile in the UK. With 34m users, it is the nation’s largest mobile telecoms operator. A merger would combine these customers with Virgin’s 6m broadband and cable TV customers in the UK, as well as its 3m mobile users. Competitor BT has 28m mobile, TV and broadband customers in the UK, as well as a million business customers.
Despite competition concerns, PP Foresight telecoms analyst Paolo Pescatore told BBC that a merger between O2 and Virgin Media would not face the same hurdles as the CK Hutchison deal.
“It’s very much complementary,” he said. “If you’re an O2 customer, you’ll be able to buy more than just mobile. If you’re a Virgin Media customer, the vision – ultimately – will be that you can buy everything in one place with one bill, which isn’t the case today.”
A merger may be of great benefit to Telefónica and Liberty Global, with analysts suggesting that combining the two companies could save £500m per year.
Pratley wrote: “Don’t expect much (or any) of that sum to be redeployed in price cuts for consumers. Instead, we’ll be told the savings are required to fund the next round of investment in broadband and 5G infrastructure.”
