O2 and Virgin Media: the combination that could reshape Britain’s telecoms industry

BT is by far the biggest UK company for mobile phone contracts and full fibre infrastructures, but what will happen if this company have to fight with another big business in the same sector?

According to Reuters, multinational media company, Telefonica (02’s owner) and Virgin Media’s parent company Liberty Global are in talks of a UK-based merger in order to create a formidable opposition to BT’s dominance in the sector. The first negotiations to merge companies have been outlined in Spain, where shares in Spain’s Telefonica SA (TEF.MC) rose to post the only strong gains on an otherwise almost entirely red Madrid index, after the company confirmed it was in talks with billionaire John Malone’s Liberty Global Plc (LBTYA.O) over a possible merger of their respective businesses in Britain.

At the moment, Virgin Media is a direct alternative to BT’s full-fibre infrastructure and with the addition of O2’s mobile network, the company could match BT’s armoury given the latter’s ownership of EE.

The move feels like a “bolt from the blue”, according to tech, media and telco analyst with PP Foresight Paolo Pescatore, who added: “While the new entity will be far stronger, I’m not sure it will be able to compete with BT and Sky. Beforehand, a few obstacles need to be overcome such as the valuation of both companies and the existing MVNO agreements (which include Virgin Media with Vodafone, O2 with Sky)”.

Although the companies are not giving much information about the deal and despite the doubts of many specialists, there are many reasons for which this deal could be completed. In fact, Virgin Media was one of the pioneers in telecoms, although it’s been let down because the company has found itself without its own mobile network, and was also late to the market in 4G. Furthermore, information about these discussions has emerged just as O2 warned the network regulator Ofcom that it plans to challenge the format for the sale of the spectrum for 5G networks.

Combining O2 and Virgin Media would reshape Britain’s telecoms industry and would raise pressure on BT. Moreover, the deal would also allow Telefonica a way to partially cash out from O2 while keeping a presence in the UK – along with other country such as Spain, Germany and Brazil, where it aims to focus its efforts to boost revenue by 2 billion euros under a new strategic plan.