Virgin Media and O2 to team up to challenge rivals

Virgin Media and O2 are in talks to create a new TV and mobile power player to challenge BT and Sky in the UK

The owners of Virgin Media and O2 are in talks to create a new TV and mobile power player to challenge BT and Sky in the UK

Billionaire John Malone’s Liberty Global, which owns Virgin Media and a 10% stake in ITV, is understood to be in talks with Spanish telecoms giant Telefonica to combine their UK assets in a joint venture.

The talks will raise speculation about whether Liberty may be open to including ITV in the deal, as the share price of the broadcaster of shows including Coronation Street and Love Island has hit a 10-year low amid the fall in ad revenues due to the coronavirus.

In 2006, Virgin Media’s then owner Sir Richard Branson saw the benefits of a takeover of ITV, but Sky took a stake in the free-to-air broadcaster to thwart the move. Malone’s Liberty Global is ITV’s largest shareholder, making him the kingmaker in any potential deal for the broadcaster.

A deal between Virgin Media and O2 would bring together the mobile operator’s 34m customers, the largest network in the UK, with the cable operator’s 5.3m broadband, pay-TV and mobile users.

O2 has been a target for a potential takeover since 2015 when a £10.25bn bid by rival Three UK, which is owned by Hong Kong conglomerate Hutchison Whampoa, was blocked by the European Commission on competition grounds.

Telefonica subsequently explored a potential £10bn spin-off of the business on the London stock market to reduce debt. The initial public offering was subsequently put on hold as the impact of Brexit raised fears over the state of the UK economy.

A combination of Virgin Media, which runs virtual mobile network Virgin Mobile using BT’s network, and O2 has previously been seen in the city as a smart consolidation move in the UK telecommunications industry.

In November, Telefonica, which is due to announce first-quarter earnings on 7 May, announced a major global restructuring plan to focus on four main markets including the UK, while selling off a number of assets in Latin America.

Last year, Liberty Global sold its German and Eastern European cable assets to Vodafone for €18bn. As a result the company has about £5.6bn in cash to deploy for potential investments. Liberty Global and Vodafone have previously held talks about a tie-up in the UK, similar to the current talks between Virgin Media and O2, but they did not progress to a deal.

However, the two companies struck a joint venture deal in the Netherlands in 2016, combining cable and mobile networks, and a revival of talks in the UK cannot be ruled out now a potential deal with O2 has been made public.

Last year, Vodafone and Virgin Media signed a deal in the UK to use each other’s networks, which was viewed as a renewing of closer ties that could kick on to potential talks of a wider deal.

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