Virgin Media O2 reported to have given up on TalkTalk acquisition

Virgin Media O2 has abandoned plans to acquire smaller rival TalkTalk due to regulatory and credit concerns, according to a report in the Telegraph newspaper.

According to the paper, access to the credit markets and the risk of the UK competitive watchdog nixing the deal are key concerns

According to the Telegraph, the pair are still in talks, with possible moves including an agreement that could see some TalkTalk customers move to Virgin Media’s networks.

However, TalkTalk is also believed to be in talks that could see it migrate its broadband subscriber base to Openreach fibre-to-the-home. The service provider has around four million broadband subscribers in the UK.

News of a possible merger between Virgin Media O2 and TalkTalk had originally been reported by Sky News in July, with the Liberty Global-Telefónica JV reportedly submitting an offer that valued TalkTalk at around £3 billion.

Analysts at Jefferies had calculated possible synergies of an acquisition at around £1.7 billion, with the transfer of TalkTalk’s customers to Virgin’s fibre-to-the-premises network serving to strengthen Virgin Media O2 as an anchor tenant of the build out.

Jefferied had however already also argued that “antitrust risk would be material as VMO2-TALK consolidation would take out the main UK broadband price disrupter and the new entity would enjoy a dominant ~51% market share in half the country”.

The analysts added that, in this context, “the cost-of-living crisis weakens regulatory support for market repair”.

Jefferies said that “logically, [TalkTalk] will now refocus on negotiating wholesale FTTP access”, with questions being raised both about TalkTalk’s future flexibility to service debt and Virgin Media O2 facing questions about the implications of tight credit market access for its continued fibre build-out.

Jefferies said that abandonment of the merger plan also relieves a potential threat to Openreach, which could have lost out from the removal of TalkTalk customers from its own fibre net.

Separately, the first joint product of Virgin Media and O2 following their merger, Volt, has surpassed the one million subscriber milestone.

The joint offering from Virgin Media O2 launched within months of the companies’ £31 billion merger in 2021, offering Virgin Media’s high-speed broadband and O2’s mobile network in one combined bundle. This milestone means that around a fifth of Virgin Media O2’s broadband customers are already taking a Volt package.