O2 and Virgin Media confirm £31 billion merger

Telefonica and Liberty Global have confirmed the merger of their UK operations.

Left-right: Jose Maria Alvarez-Pallete; Mike Fries

The 50-50 merger will see O2 and Virgin Media come together under one roof to create what the companies say will be “a stronger fixed and mobile competitor in the UK market.” The transaction, expected to close in the middle of 2021, is expected to deliver synergies valued at £6.2billion on a net present value basis after integration costs, and equivalent to cost, capex and revenue benefits of £540million on an annual basis by the fifth full year post-closing.

The companies added that they would invest £10 billion in the UK over the next five years to create a “fully converged platform that will put customers first.”

The deal is valued at £31 billion including debt – far surpassing BT’s £12.5 billion acquisition of mobile operator EE in 2015. This values O2 at £12.7 billion and Liberty’s Virgin Media at £18.7 billion.

Telefonica CEO, Jose Maria Alvarez-Pallete, 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. This is a proud and exciting moment for our organisations, as we create a leading integrated communications provider in the UK.”

Mike Fries, CEO of Liberty Global, said: “We couldn’t be more excited about this combination. Virgin Media has redefined broadband and entertainment in the UL 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.”

News of a potential deal first emerged earlier this week, with the operators then confirming that talks were taking place.

Virgin’s TV business has underwhelmed in recent times, losing customers for five consecutive quarters to a current total of 3.69 million in the UK and 280,000 in Ireland. Virgin does have a mobile business, but its 3.18 million British and 97,000 Irish customers pale in comparison to O2’s UK total of 25.8 million. Telefonica also has an additional 8.71 million subscribers through third parties.

Commenting on the merger, 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, today’s announcement is still likely to put the wind up competitors in both the broadband and the mobile space, particularly BT.

“Virgin Media already has the fastest widely available UK broadband network, but is hampered by more limited availability than providers using BT-owned Openreach. Likewise, EE – also owned by BT – currently offers the largest network and the fastest mobile data speeds. Greater competition is almost always good for consumers and the truth is BT/EE/Openreach needs a competitor of similar size. I welcome this merger and the likely positive impacts it will have for UK consumers.”