Are Virgin Media and O2 set to merge?

UK broadband giant Virgin Media and mobile phone operator 02 have begun negotiations to create one of the country’s largest entertainment and telecoms firms – and one that could rival the dominance of BT.

Liberty Global-owned Virgin Media, which runs the UK’s second-largest cable network, would enter a 50:50 joint venture with O2, owned by Spain’s Telefonica.

The deal would combine O2’s 34 million UK customers with Virgin’s 14 million broadband, TV and mobile customers across the UK and Ireland.

A deal could be announced on Thursday, when Telefonica will deliver its quarterly results. However, the company stressed that the negotiations were ongoing and there was no guarantee they would reach a deal.

Virgin Media and O2 are reportedly in talks over a merger that would create one of the UK’s largest entertainment and communications firms.

Industry reaction

Professor John Colley, Associate Dean at Warwick Business School

This may be an opportunistic merger attempting to take advantage of the perceived change in policy from the CMA. In recent weeks it has become apparent that the CMA has become more focussed on the survival of business as a priority over maintaining a competitive market.

However, O2 and Virgin Media are businesses benefitting from the present covid induced state of affairs. One suspects that the CMA will take a keen interest in this merger.

All the evidence from other countries suggests that in the telecoms and broadband market that the levels of supplier concentration directly influence profits and prices.

Where there are three competitors, profits and prices tend to be much higher than where there are four or five competitors. It seems unlikely that customers can gain from this merger as it is unlikely that sufficient competition will remain after the merger to force competitors to pass savings on to competitors on in lower prices.