A person walks past a Virgin Media mobile phone store, closed down due to the Covid-19 pandemic, in London on May 4, 2020.
Tolga Akmen | AFP via Getty Images
Liberty Global and Telefonica have agreed to combine their U.K. operations in a deal that will create a new giant in the country’s telecommunications industry.
Liberty Global’s cable operator Virgin Media will merge with Telefonica’s mobile carrier O2 in a 50-50 joint venture between the two firms. The deal is valued at £31.4 billion ($38.9 billion), with O2 worth £12.7 billion in the deal, and Virgin Media valued at £18.7 billion. The transaction is expected to close by mid-2021.
The combined company could put pressure on telecommunications firm BT — which itself bought EE, Britain’s biggest mobile network operator, in 2016 — as well as rival carrier Vodafone. BT announced on Wednesday that it was suspending dividends in 2019/2020 and 2020/2021 to manage through the coronavirus crisis.
“For sure, rivals are in a better position as they have a head start,” said Paolo Pescatore, tech, media and telco analyst at PP Foresight. “It will take time for this new entity to come together, merge processes and offer a truly converged product to customers.”
“Currently, they will have customers on different networks so they will need to work for subscribers to come out of contract. One area they will both need to work on is customer service with both not performing well in Ofcom’s quarterly complaints report.”
Ofcom is the U.K. watchdog tasked with overseeing the country’s broadcasting and telecommunications industries.
“An Achilles heel will be Liberty Global’s cable footprint and O2’s spectrum position,” Pescatore added. “These areas will be need to be addressed to ensure they are able to serve all users with their broader portfolio of services.”
Telefonica CEO Jose Maria Alvarez-Pallete said the deal would be a “game-changer in the U.K., 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 U.K. digital infrastructure and give millions of consumer, business and public sector customers more choice and value,” he added.
The combined group will have a total of 46 million video, broadband and mobile subscribers, as well as £11 billion in revenue, the companies said. The deal will allow Virgin Media to tap O2’s experience in developing next-generation 5G mobile networks, which are expected to be a significant driver of sales for telecommunications firms in the future.