A merger deal could potentially create a UK telecom giant
Telefonica, which owns O2, confirmed this morning (May 4) that talks are ongoing between the operator and Liberty Global-owned Virgin Media over a merger.
The Spanish firm has however said there is no guarantee that a deal will be agreed.
Any merger would provide a significant rival for BT, which owns the UK’s biggest mobile operator EE.
O2 has around 34 million customers on its network in the UK, including MVNOs Sky Mobile, Giffgaff and Tesco Mobile.
While Virgin Media has over five million broadband, pay-TV and mobile users in the UK.
The proposed deal would see both customer bases combined together.
Vodafone will feel the impact of a deal, according to CCS Insight director of consumer and connectivity Kester Mann.
Vodafone had agreed to onboard Virgin Mobile’s three million mobile customers from next year, but any deal could scupper this.
“The merger rumours could have a ripple effect on the UK market,” said Mann.
“Should a Virgin and O2 deal eventually prevail, Vodafone’s position in the accelerating UK market for converged services would start to look increasingly precarious.”
Although Mann anticipates any deal would come across hurdles, he sees the logic behind it.
“A deal between O2 and Virgin Media has much logic. Notably, it would offer each side crucial assets it severely lacks: a mobile network for Virgin and a fixed-line arm for O2.
“Should it come to fruition, it would transform the UK telecoms industry and a create a giant converged provider to rival BT.”
While PP Foresight analyst Paolo Pescatore has called this a “bolt out of the blue”.
“While, the new entity will be far stronger, not sure it will be able to compete with BT and Sky. Beforehand a few obstacles need to be overcome, such as valuation of both companies and the existing MVNO agreements.”
He added: “Virgin Media was one of the pioneers in this area but has been let down without a mobile network, late to market in 4G and struggling TV business. Whereas O2 sole’s focus on mobile and championing consumers will run out of steam at some point.”