Virgin Media Owner Hints at Interest in Gobbling Mobile Operator O2 UK

The CEO of Liberty Global, which owns cable operator Virgin Media in the United Kingdom, has joined French telecoms firm Illiad SA (here) by indicating that they too would have an interest in O2 (Telefonica UK) if the operator suddenly came up for sale again.

The UK’s largest cable operator would no doubt benefit from having a mobile network business of its own and indeed they could leverage their existing fixed line network in order to support it with more cost effective capacity, efficiency savings or new consumer products; much like BT’s recent and unimpeded mega merger with EE should deliver.

Last year also saw the owners of Virgin Media and Vodafone engage in tentative talks that could have resulted in a deal to take on BT, but unfortunately those discussions were not able to deliver a satisfactory solution for either side (here). However both sides are understood to have kept the door open to more discussions in the future, should such a desire arise.

In the meantime the CEO of Liberty Global, Mike Fries, told an investor call yesterday (reuters) that they would “look at all options in the marketplace and it would be strange if we didn’t evaluate that [O2 bid] option,” but Fries also added that he was happy with their current plan.

Mike Fries, CEO of Liberty Global, said:

“It would be strange if we didn’t evaluate that option, but I can’t give you any colour on that. We like our current plan and while I like optionality, I am not particularly fond of options that preclude optionality.

So we are going to be thoughtful not just about the economics of a transaction, but also looking three, four, five years down the road – ‘what is the right plan for us?’. That’s what we are doing in every market for mobile.”

The issue has taken centre stage because the European Commission is this week expected to either reject Three UK’s (CK Hutchison Holdings) proposed £10.25bn merger with rival mobile operator O2 (Telefonica UK) or make it so difficult to achieve that the deal simply couldn’t survive. Hutchison have pledged to take legal action, but O2 may not wait to see the outcome.

Neither the UK nor EU regulators are happy with the merger, which they say will result in higher prices, create problems with existing network sharing deals and hurt competition by reducing the number of primary operators in the market from four to three.

On the other hand such a merger could improve network coverage for existing customers and produce a larger operator that would be better able to compete against BT’s growing dominance, which is an aspect that often fails to be given proper consideration by Ofcom.

At present Virgin Mobile uses EE’s MVNO network (contract lasts until 2018) and they had hoped, much like Sky (Sky Broadband), to do a deal with the merged business of O2 and Three UK (here), but if the reports are true then those plans will shortly face a significant setback. Separately Sky also has an existing MVNO deal with O2 and they still expect to launch a mobile service before the end of 2016.

Tom Mockridge, Virgin Media CEO, said (Feb 2016):

“‎The European Commission has previously cleared mobile mergers which resulted in a reduction in the number of mobile operators from four to three, subject to wholesale remedies. In two of these cases, Austria and Ireland, Virgin Media’s parent company Liberty Global provides vigorous competition and consumer choice as a result of taking EU remedies.

The same can be true in the UK. A combined O2-Three could have more to offer consumers and, crucially, more capacity for other providers who want to drive competition in their own right. With the right remedies, this deal could stimulate not curb competition.”

It’s easy to forget that O2 UK once had a fixed line business of its own that stemmed from the purchase of BE Unlimited’s unbundled network, which did rather well for a few years before they started fiddling with the products too aggressively and turned happy customers into unhappy ones. The business was eventually sold to Sky. It’s a funny old world.