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Virgin Media and O2 to merge in £31bn UK deal

Virgin Media and O2 to merge in £31bn UK deal

After some days of speculation, Virgin Media and O2 have confirmed a merger of their broadband and mobile divisions in the UK.

Led by parent companies Liberty Global (Virgin) and Telefonica (O2), this would put the 50-50 joint venture on a scale that matches BT, which has been the unrivalled UK market leader in telecoms since buying mobile network operator EE in 2016.

Liberty Global also owns a 10% share in ITV — making it the channel’s largest shareholder — so the newly merged company will be on a good footing to offer an attractive pay-TV service too.

This new all-in-one provider will marry O2’s 4G and 5G mobile networks with Virgin Media’s extensive cable broadband infrastructure and sizeable TV presence, allowing it to offer highly competitive bundle packages to UK consumers.

It’s currently unclear whether they will form under one name or remain as individual brands, like EE and BT did when the mobile network was bought by BT.

What does this mean for UK consumers?

The sheer scale of the two companies and the potential added benefits of joining this new company would provide ample opportunity for customers to break out of long-term relationships they have with the existing big-hitters, who offer a wide range of customer care options to keep the majority of their customers for years.

With 34 million mobile customers, O2 already boasts the UK’s largest mobile network — providing the infrastructure for a number of mobile virtual network operators like Tesco Mobile, GiffGaff and Sky Mobile. Its servicing of Sky Mobile specifically will be one to watch over the next year as broadband & TV competitor Virgin is likely to be brought into the fold — taking it from EE.

But regardless of whether Sky Mobile remains in the picture or not for this new provider, the merger simply means that existing Virgin Media customers will have exclusive access to O2’s mobile offerings and perks and O2 customers will likely get fantastic deals for one of the UK’s fastest broadband providers.

However, it won’t necessarily be smooth sailing for the new provider. Virgin Media’s broadband network is already quite expensive for many customers, and its availability to roughly 60% of UK homes means that this new provider will still have a tough challenge on its hands if it intends to match the availability of BT’s Openreach network.

The same goes for building a TV offering that’s good enough to attract customers in an already highly-competitive area — we’ve seen providers invest in channel availability, premium broadcast rights or even producing original content to achieve this in recent years.

But with O2 and Virgin Media’s close ties with on-demand and streaming services like Amazon Prime Video, we could see them aim for the more future-proofed, digital TV route instead.

Read more on how the Virgin Media and O2 merger could change the telecoms market.

Our verdict

Uswitch mobiles expert Ernest Doku says:

“This merger between the UK’s biggest mobile company and a prevailing broadband giant will create a titan of the telecoms industry that will almost certainly throw down a challenge to the most dominant player, BT.

“It’s a natural and complementary fit, with O2 returning to fixed-line broadband and Virgin Media bolstering its mobile proposition.

“Depending on the regulatory merger process, the deal could be completed as early as Summer 2021.

“With Vodafone having courted a tie up with Virgin Media in the past and Three being blocked from acquiring O2 in 2016, it will be interesting to see if today’s news sparks an arms race in the rest of the industry.

“This joining of forces is undoubtedly big news — but the most important thing is that customers will benefit rather than lose out. It’s vital that the combined brands maintain the high standards of customer care and service that people have come to expect.

“Both the O2 and Virgin Media brands are expected to remain in the short-term, but it will be interesting to see what this means for existing customers in terms of products and access to extra services, such as O2 Priorities.

“Immediate steps like Telefonica powering Virgin’s virtual mobile network will eventually generate £110 million of annual savings, but duplication means there is the potential for jobs to be cut.

“Nevertheless, for all customers there is the exciting prospect of greater breadth of entertainment and faster speeds to look forward to.”

Looking to switch your broadband or mobile provider? Take a look at some of our top telecoms deals.

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