Vodafone could gatecrash O2-Virgin Media merger or face being left without a foothold in UK broadband
Vodafone will be the biggest loser from the planned O2-Virgin Media merger and could seek to ‘gatecrash’ the deal, say industry experts.
The British telecoms giant has long been seen as a potential suitor for broadband provider Virgin after it previously held unsuccessful takeover talks with parent Liberty Global.
But now Virgin is instead pursuing a tie-up with UK mobile network O2, which is owned by Spain’s Telefonica, leaving Vodafone out in the cold.
Vodafone has long been seen as a potential suitor for broadband provider Virgin after it previously held unsuccessful takeover talks with parent Liberty Global
The deal would create a £24billion telecoms powerhouse spanning 6m broadband customers and 34m mobile users, challenging the dominance of BT and its mobile network EE.
But it would also leave Vodafone without a significant foothold in UK broadband, at a time when the industry is shifting towards offering ‘converged’ bundles that combine broadband, mobile and television services.
That could prompt Vodafone to mount a rival bid for Virgin or look for another takeover target to expand its reach, analysts have predicted.
Vodafone, which has 444m customers worldwide, is a major player in mobile and fixed assets in other top markets, including Germany, Spain and Italy.
Kester Mann, a telecoms analyst at CCS Insight, said: ‘If the Virgin-O2 merger comes to fruition, Vodafone is going to be the biggest loser.
‘It has tried to get into the converged bundle market but has not really made a lot of progress, so the creation of another converged, more capable competitor is going to put even more pressure on it.
‘Vodafone has been talking to Liberty Global for many years, so the O2 announcement may now prompt it to come back to the table and make a rival offer.
‘It has shown a renewed drive and commitment to the UK in recent years but they could now be left quite exposed.
‘So if I was Vodafone and I heard about these merger talks I would be asking: ‘What are our options here?’
‘To gain fixed-line customers organically is extremely difficult. The only way to do that might be through an acquisition or new partnership.’
James Craven, managing director at investment bank GCA Altium, added: ‘Potentially, this could trigger a bidding war between O2 and Vodafone to seal a deal with Virgin Media.’
Analysts at HSBC have also suggested that Vodafone’s bosses are debating ‘whether to crash the party’.
And should the O2-Virgin Media merger go ahead, they said budget broadband provider Talktalk and its 4.3m customers might become a takeover target for Vodafone or smaller mobile rival Three.
Talktalk, which is 29.8 per cent-owned by Carphone Warehouse tycoon Sir Charles Dunstone, has a market capitalisation of about £950million. Its shares have fallen 30 per cent so far this year.
But HSBC’s analysts told clients: ‘If convergence begins to play a larger role in the UK telecoms market, then we think Talktalk’s base, and the scale that it provides, end up being a potentially attractive target for one of the two remaining mobile network operators who are without fixed broadband customers.’
The trend towards ‘converged’ packages in the telecoms market has been predicted for several years but in the UK companies have been slower to adopt them.
In November, BT launched its Halo packages – covering fixed broadband, fixed phone lines and mobile – promising ‘connectivity in and out of the home’ and support from technical experts for families.
It is priced from £57.99 per month, compared to standard broadband costing £27.99 per month.
Vodafone declined to comment last night.