Mobile operator O2 is in talks to merge with Virgin Media in a move that would pose a serious threat to rival telcos including BT and Sky.
Telefonica, O2’s Spanish owner, confirmed it is in discussions with Virgin-owner Liberty Global over a deal between the two network operators.
Liberty Global, which is owned by American billionaire John Malone, is reportedly considering a merger of the two companies’ British units.
Telefonica stressed it is currently in the ‘negotiation phase’, and it is not guaranteed that the two parties will agree a deal.
The Spanish telco giant said it would keep markets informed if a ‘satisfactory agreement’ was reached, according to Reuters.
Liberty Global told MailOnline it is not commenting on the potential merger.
The two have started a negotiation process to merge Telefonica’s British mobile operator O2 and Liberty’s Virgin Media network company, the Spanish company said
‘The process started between both parties is in negotiation phase, with no guarantee, at this point, precise terms or its probability of success,’ Telefonica said.
A tie-up between the two companies could create a major rival for BT, which owns EE, the UK’s second largest mobile network.
It would bring together O2’s 34 million customers on its mobile network with Virgin’s 5.3 million broadband, pay-TV and mobile users.
Virgin Media competes with UK pay-TV market leader Sky, owned by Comcast, in pay-TV, and with BT, Sky, TalkTalk and others in broadband
O2 – which also provides the network for GiffGaff, Tesco Mobile and Sky Mobile – is the UK’s largest phone company.
Paolo Pescatore, tech and media analyst at PP Foresight, called it ‘an intriguing move’ and ‘a bolt out of the blue’.
‘For sure, it is more likely to appease regulators than two mobile operators coming together,’ he said.
‘Also, let’s not forget the parents of both companies have been keen to offload these assets for a while.
‘Therefore, there is more to this than simply convergence and competing with BT and Sky.’
While the new entity will be far stronger, Pescatore said obstacles will need to be overcome before the newly-formed entity would be able to compete with BT and Sky, including a valuation of both companies.
Virgin Media remains the ‘crown jewels’ in Liberty Global’s portfolio, but also a ‘problem child’, 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.’
Telefonica has been examining options for the O2 business since 2016, after a planned takeover by CK Hutchinson – which owns fellow mobile operator Three – was blocked by European competition regulators.
Talks between O2 and Virgin Media also raise questions over the future of Virgin’s mobile operations, which were due to be taken over by Vodafone later this year.
In November, Vodafone won the five-year contract from BT-owned EE.
The Telefonica headquarters in Madrid, Spain. Telefonica confirmed it was in talks with billionaire John Malone’s Liberty Global Plc over a possible merger of their respective businesses in Britain
According to Reuters, Telefonica share price rose 3.2 per cent on Monday because of the merger talks.
Telefonica, which reports its first-quarter results on Thursday, has struggled to boost profit growth in the face of fierce competition.
The company’s debt pile stood at 37.74 billion euros at the end of last year and its shares are down 30 per cent so far this year.
Its UK business generated 7.11 billion euros in revenue in 2019, around 14.7 per cent of the group’s total, and had 34.5 mobile connections on its network.
Virgin Media, meanwhile, had 6 million cable customers and 3.3 million mobile customers as of the end of 2019.