Virgin Media O2 UK Allegedly Offer £3bn for TalkTalk Broadband Merger

Multiple newspaper reports are this afternoon claiming that mobile and broadband giant Virgin Media (VMO2) is in early talks to merge with low-cost conscious UK ISP TalkTalk and take on its fixed line customer base of 4.2 million (VMO2 is home to 5.6 million). The proposed deal is said to value the company at around £3bn.

At present Virgin Media and O2 are still fairly fresh from their own mega merger last year, although despite their combined size the newly merged company is still somewhat behind arch-rival BT in terms of their fixed broadband base. BT is currently home to somewhere around 9 million customers, although it’s hard to be sure as they stopped reporting an exact total some years (after they started losing customers).

The decision to merge with TalkTalk, if agreed, would thus create a comparable customer base to BT’s and help to support VMO2’s plans to expand their Fibre-to-the-Premises (FTTP) network to a further 7 million UK premises by 2027 via a new joint venture (here). Indeed, VMO2 have been hunting for a co-investment partner in the ISP space to help conduct that project, with Sky Broadband and TalkTalk being logical choices.

As for TalkTalk, in 2020 they became the subject of a £1.1bn takeover by Toscafund – controlled by hedge fund tycoon Martin Hughes (here), which including debt valued the broadband provider at around £1.8bn. The deal took the ISP private and gave them more financial flexibility for their future plans. Since then, they’ve backed altnet builder Freedom Fibre (here) and acquired Ethernet provider Virtual1 (here). TalkTalk has also been linked to the possible acquisition of Ovo Energy‘s (SSE) broadband base of c. 100,000 customers (here).

However, one potential issue here is that VMO2 and TalkTalk tend to focus on different parts of the fixed broadband and phone market, with TT being more of a budget provider and Virgin trying to target the premium space. But it’s plausible that a merger deal may retain TT in its position and brand as a low-cost option, albeit while offering customers access to their newer FTTP network at wholesale (TT is currently dominated by Openreach products).

We should also mention that VMO2 is a significant player in the UK Pay TV market, while TT also has a Pay TV base of their own, although the latter has long since stopped trying to compete directly with the big players and have instead moved to focus on a cheaper solution via Netgem TV.

In addition, VMO2 gobbling up TalkTalk could potentially have a negative impact upon CityFibre. TalkTalk are one of CityFibre’s primary ISPs on their new FTTP network, and losing them to VMO2 would thus be a blow. Being able to attract major ISPs to a network is something that can help alternative operators to succeed. But CityFibre would still have Vodafone, Zen Internet and many more on their side.

At the time of writing, TT and VMO2 have declined to comment on the reports (examples here and here). Meanwhile, BT’s share price has understandably tumbled by more than 8% on today’s news.