Virgin Media O2 CEO vents anger at UK Govt over BT’s TalkTalk broadband deal
The CEO of broadband and mobile giant Virgin Media (O2) has today published an Open Letter that it just sent to Lisa Nandy MP, Secretary of State for Culture, Media and Sport, which makes their objections to the acquisition of TalkTalk and PlatformX Communications (PXC) by BT Group quite clear – despite the fact they didn’t bid themselves.
Just to recap. BT reached a deal to acquire both TalkTalk’s consumer broadband ISP business and their PXC (PlatformX Communications) wholesale business on Monday (5th October), which occurred after TalkTalk repeatedly failed to reach a sale agreement with any of the other bidders.
BT ultimately stepped in to avoid a disorderly liquidation, which became increasingly likely after it emerged that there wasn’t even enough money left to fund the company’s administration. Under corporate law, the Directors might have had to cease TalkTalk’s operations, which would have disrupted supplies to various critical public services and vulnerable customers.
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The highly unusual agreement, which might have ordinarily raised significant competition concerns, was only possible because the Government’s Secretary of State issued a Public Interest Intervention Notice under section 42 of the Enterprise Act 2002. The notice allows her to consider the wider public interest of the deal, once the CMA has reported on its competition concerns.
The BT Group will ultimately acquire TalkTalk and PXC out of administration on a debt-free basis for a total cash impact in FY27 of about £400m. But crucially, this is not a normal purchase by any stretch of the imagination. Part of that money will thus also go toward paying administration costs, trading losses, some working capital movements and other items etc.
Suffice to say that VMO2, which didn’t itself bid on the provider and previously described the deal as a “stitch up masked as a rescue deal in the public interest“, has today published an Open Letter to highlight their concerns in a more detailed and formal capacity.
Acquisition of TalkTalk and PlatformX Communications by BT Group
Dear Secretary of State,
Following yesterday’s announcement that BT Group will acquire TalkTalk’s consumer business and PlatformX Communications (PXC) out of administration, I am writing on behalf of Virgin Media O2 as we believe the transaction raises fundamental questions for competition, consumers and continued investment in UK connectivity.
We fully recognise the need to protect TalkTalk customers, particularly vulnerable households, and maintain critical public services. However, an immediate continuity solution must not become, by default, a permanent restructuring of the UK broadband market in favour of the incumbent.
Business continuity and permanent ownership are separate questions. Protecting customers does not, in our view, require Government to predetermine who should ultimately own TalkTalk’s consumer and wholesale businesses; credible alternative arrangements should be fully explored.
Given the exceptional intervention, we would welcome clarity on the evidence relied upon by the Secretary of State, and how it supports the process and timetable now being followed.
TalkTalk’s distress is a symptom of a fragile broadband market
TalkTalk’s collapse should not be viewed simply as the failure of one company. It is a warning about the health and structure of the UK’s fibre market. It has been unable to sustain its position in a market characterised by intense pressure on margins, fragmented network economics and insufficient scale for a challenger. The appropriate response should be to examine why the market has produced this outcome, not to make it structurally less competitive by transferring a major customer base and wholesale platform to the incumbent.
If the consequence of market failure is that distressed challengers are absorbed by the dominant network operator, the market risks becoming self-reinforcing. Reduced competition leads to fewer viable routes to scale, weaker incentives for alternative investment and greater dependence on the incumbent.
BT’s position requires especially careful scrutiny
In this context, it is important to remember that BT is not simply another prospective purchaser. Through Openreach, it is the dominant fixed-network operator, a major supplier to TalkTalk and a significant creditor, while BT, EE and Plusnet compete directly with TalkTalk for retail customers.
This creates a particularly uncomfortable sequence of events. Openreach has been seeking repayment of substantial sums owed by TalkTalk, adding to the financial pressures preceding its administration. BT has now acquired the resulting business and, through that transaction, further secured its incumbent position. The CMA will need to examine closely the extent to which BT’s conduct and leverage as supplier and creditor affected the options available to TalkTalk, and whether it is appropriate for the same Corporate group ultimately to benefit from the outcome.
A fundamental question of consistency
The timing also raises a fundamental question of consistency. Only days ago, the CMA provisionally identified competition concerns with nexfibre’s proposed acquisition of Substantial Group, including Netomnia, despite its potential to support further full-fibre investment and create a scaled, financially sustainable challenger to Openreach. Specifically, these concerns noted a lessening of wholesale competition in the broadband market.
At the same time, yesterday’s announcement transfers PXC’s significant wholesale operations to BT through a pre-pack process removing an important source of independent wholesale competition.
The PXC element should therefore be assessed separately and on its own merits. At a minimum, the CMA will need to consider whether separation, divestment or other structural remedies are necessary to preserve meaningful wholesale competition.
The investment signal matters
The precedent also matters. Relaxing safeguards for an incumbent acquiring a distressed competitor could weaken investor confidence in a stable and predictable UK framework, making it harder to attract the long-term capital needed for competition, deployment and the Government’s connectivity ambitions.
The CMA must have sufficient time to do its job
We are particularly concerned about the timetable set by the Public Interest Intervention Notice (PIIN).
The CMA needs sufficient time to gather and analyse evidence, assess the potential competition concerns and produce a meaningful report.
By comparison, the aforementioned Netomnia transaction has been under review for eight months. We are concerned that the current timeframe may not permit an in-depth assessment and this is just a paper exercise.
The CMA must have time to properly assess whether other credible commercial options were available for the consumer and wholesale businesses, and whether BT’s position as supplier and creditor affected the outcome. It must also have time to consider (and consult on) whether there are any robust and enforceable remedies, such as the divestment of TalkTalk customers and PXC, that could mitigate any competition concerns that it may identify.
An immediate continuity solution must not create lasting market concentration, reduce choice for retail or wholesale customers, or weaken investment incentives for Openreach’s challengers.
Protect customers today, protect competition tomorrow
We are not seeking preferential treatment for Virgin Media O2 or any other prospective participant, instead an open, competitive process in which credible participants can offer alternatives and the long-term implications for competition are fully assessed.
If BT is ultimately permitted to acquire TalkTalk, we believe this should not be without conditions to protect retail and wholesale competition to ensure that the transaction does not simply transfer further retail scale to BT. Any conditions imposed should also help preserve the competitive benefits of the significant investment already made in alternative fibre infrastructure.
We would welcome an early meeting with you and officials to set out our concerns and discuss the safeguards that may be appropriate.
Yours sincerely,
Lutz Schüler
Chief Executive Officer
Virgin Media O2
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook, BlueSky, Threads.net and Linkedin.
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As the article says they didn’t get involved themselves then complain about BT getting involved, they bleat on about competition but then do their best to snuff it out themselves. Total hypocrisy.
The letter is not criticising the intervention; it is instead raising points about the long-term outcome.
I would also make the point that it is likely to have been a long-term expectation amongst the leaders in the sector that BT would have to step in. The letter, in my view, is more about the contradictions the intervention has created with respect to the CMA’s initial assessment of the Netomnia takeover than the initial BT intervention.
Reading that, one can only assume that the closely second-largest broadband provider would had been happier had they bought TT instead of the largest. Pity they didn’t bid tho (or have the £400million it’s costing BT this year alone).
And considering how three-quarters of people are not BT customers, how much longer can people continue to describe them as “the incumbent” without sounding silly?
It’s my presumption that given talktalk use the openreach network that this takeover will require very little work on BTs part to seamlessly move over all the customers.
It would be far harder for virgin to do the same.
Then why didn’t they bid on it?
Likely because they assessed that a proactive bid would have triggered a CMA 2 phase review due to their size, with potential remedies, and would not delivered value (maybe not at any price).
Virgin might have been slightly happerier if a smaller ISP had taken TT over (ie not Sky or Vodafone), or a private equity buyout with no other broadband assets involved.
Anyway their bleating is more about the bid they are making which is subject to competition review (and they feel aggreived about that).
Miles – no smaller ISP would have the resources needed to fund the takeover. It’s debatable whether or not Sky or Vodafone could have stepped in to keep TT a going concern.
The senior levels within the sector have probably had an expectation for some time that BT would have to intervene should TalkTalk move to failure. The available numbers suggest that TalkTalk could not even enter administration with its own remaining resources.
That raises a question about the viability of the business, even with it being shawn of the debt payments. I suspect that even without the debt burden, the business is no longer viable and that BT will continue to make losses on the acquisition until the contracts come to an end. Any restructuring costs incurred will only add to those losses.
That would explain why other players would be relieved if BT took the hit.
Total hypocrite but he’s not wrong.
TalkTalk’s failure has been a slow motion car crash, with multiple suitors running the slide rule over the business and they all walked away. Clearly not one of these potential suitors could make a takeover of TalkTalk financially viable, so I don’t know what they expected the final outcome to be. The NexFibre/Netomnia deal and this particular TalkTalk fiasco are completely different from a competitive viewpoint, conflating the two is misdirection. If VMO2 and other complainers have an issue with BT taking over TalkTalk then they should have reached into their pockets and competed for the business, the truth is this only works financially for BT.
On the consumer side, adding the TalkTalk retail customers to BT takes BT’s market share up to around 36%, which is in line with other European incumbents and doesn’t impact the UK’s competitive environment, in fact all the remaining ISP’s benefit equally from TalkTalk’s failure.
VMO2 and others should either put up, or shut up, if they don’t like the current situation they should come in with alternative offers for the TalkTalk business. It’s obvious why the Government have facilitated this, it’s because it was the only viable outcome.
Nice strawman with the “conflation”, sounds like you have BT stocks
The issue is not VM not placing a bid but it’s obvious why Talktalk doesn’t have the same value to VM as it does to BT because they literally sell on the same lines as BT, this VM would lose a ton of revenue if they were to acquire
The obvious issue is the gov stalling (and potentially blocking) a sale on a much smaller scale but fast tracking the other in favor of the incumbent
“At the same time, yesterday’s announcement transfers PXC’s significant wholesale operations to BT through a pre-pack process removing an important source of independent wholesale competition”
I agree. That is not ideal. The more competition the merrier. But is Virgin the right messenger for this? Who do they wholesale their residential network to. Only recently I believe, GiffGaff now can sell packages on their network – but that’s a flanker brand, they own it. I’ve heard for years that they were looking into wholesale options. I heard years ago they were in talks with atleast Sky for access but that never happened
Maybe I’m wrong. Maybe they wholesale to others. But I’m not aware
If the Nexfibre takeover of Netomnia is allowed to proceed, the Liberty Global/Telefonica JVs will be acquiring a working wholesale platform that will allow them to open up their networks.
Here is the uncomfortable trust Lutz, there was a competitive process and you didn’t bid for it. The business was insolvent. Who did you expect to fund the continuity of the business and prolong the uncertainty for consumers and suppliers – HMG / Openreach / the creditors? I’m pretty certain the administrators report will shed some lights on the dire state of this business.
Lutz is just sore the CMA have seen through his proposed take over of Netomnia. Perhaps focus on your own customer service and upgrading cable to fibre, that might help with your churn
I think the CMA has not adequately assessed the level of competition the Netomnia acquisition would represent to Openreach.
The acquisition would be the first network to compete with BT at scale. That is the overriding justification for allowing the takeover to proceed. If it does not go forward, the sector will not be able to fund future investment at current retail prices.
If VM hadn’t pre-planned this anger and outrage, then VM is worse run than I thought.
It doesn’t matter if you hate VM but it shows massive hypocrisy from the gov to block the sale of Netomnia on the grounds of competition when it only has half a million customers but then fast tracks Talktalk sale when they literally have several million customers, which would actually put BT closer to a monopoly position
It is either stupidity, incompetence or pure malevolence if their goal is to then spend billions to seize BT later down the line and place it under further gov control
Netomnia aren’t days away from their suppliers terminating services, they don’t operate a huge wholesale network underpinning CNI. There are not the same time pressures on the Netomnia acquisition that there were for sorting out TalkTalk. If BT had proposed to buy TalkTalk a year ago when they weren’t at risk of not making payments then I’m sure the CMA would have applied scrutiny to it.
If it’s blocked it’s the CMA (& it hasn’t decided yet) not the government, whereas the government has bypassed the CMA altogether with TalkTalk difference is Netomnia is not insolvent. Personally I would suggest the Netomnia deal is more likely to get waved through now.
You’re being pretty dense if you don’t understand the difference between purchasing a company that is using your network to provide services, versus purchasing an entire network.
@jonny so what message do you think this send to industry? Mismanage as much as possible to get gov fast track or play the game properly and risk the gov blocking your deal
John Virgin Media O2 were going to acquire TalkTalk for around £3 billion in 2022, only to abandon that later on, and they could have stepped in now to buy TalkTalk but they didn’t ¯\_(ツ)_/¯
John, the company that was mismanaged went into administration. It’s not much of a blueprint for avoiding competition regulator scrutiny.
Virgin should of put a bid in for Talk Talk
and bought it but they didn’t
They went for another Company instead
If they become big or too big
then OFCOM will impose Rules
on the business like BT
I must have missed Schuler’s suggestion for what should have been done instead.
His letter is about should happen next, arguably he even accepted that what has happened so far was the right thing to do for continuity. He now wants a proper investigation of the transaction by the CMA so that any necessary mitigations and conditions can be properly considered. I would imagine that this would in the meantime entail BT not doing anything that would prevent them from disposing of either business should the CMA deem it necessary. It’s all very reasonable, IMO, given BT’s status, the headline to this article I don’t think reflects the letter.
The letter makes valid points about the state of the sector, the acquisition. It also confirms recognition of the imperative behind the intervention.
The comments on the state of the sector are certainly pertinent. Most of the players are no longer functioning when it comes to matters of expansion of the fibre network. However, that topic cannot be addressed by a review of the decision process involved in this instance. That would require Parliamentary and Government intervention to set financial stability regulations akin to those imposed on banks. That can not happen overnight.
The letter is also correct in addressing the long-term ownership of the service and customer base associated with TalkTalk. It slightly misses the mark in this respect in that the already announced CMA review will inform the long-term outcome, not the Minister’s initial decision to issue the PIIN.
The criticism of Openreach for seeking settlement of arrears and payments is, in my view, unjustified. BT had the right toact inits own interest, as would the Liberty Global/Telefonica JVs if a customer were to default on payments.
As to the comments on inconsistency, the letter seems to be mixing up the matters of long-term resolution with what was a need to act immediately. It will be the CMA’s review that will inform the long-term outcome of the TalkTalk customers and the wholesale operation. I would also make the point that the Liberty Global/Telefonia JVs would be obtaining access to a wholesale platform if the Netomnia acquisition were to proceed. If anything, Vodafone might be a more beneficial acquirer of PXC in terms of safeguarding competition.
I agree about the time required to review the competition implications of the TalkTalk acquisition. Ten working days is insufficient to perform a thorough assessment, unless of course, the implications had already been assessed due to previous warnings about the long-term viability of TalkTalk as a going business.
One final point. The CMA has, in my view, made a poor assessment of the Netominia takeover bid. It would seem to have underestimated the unprecedented level of competition the merger would represent to Openreach. However, VMO2/Liberty Global/Telefonica should address that matter on its own merits rather than trying to pull the TalkTalk acquisition into the discussions.
“TalkTalk’s distress is a symptom of a fragile broadband market”
Wrong. It’s distress is due to years of poor management and a boys club taking benefits at the expense of sound operating practices. I fully expect BT to discover some very interesting practices.
The retail market sector is dysfunctional, with so many players that there is an excessive level of competition, to the extent that ISPs are not able to charge realistic prices. This is undermining investment and even the sustainability of the players.
I’m so sorry because BT, unlike Virgin Meina 02 anymore, has finished, doesn’t want to talk to Virgin Meina 02 enough
TalkTalk use Openreach’s infrastructure (for most part).
Talk Talk owe BT (Openreach) millions in revenue.
BT were not willing to wipe much if any of this debt owed.
Virgin were not willing to put a bid in and adsorb this debt owed to Openreach and be left paying Openreach for use of their network for the foreseeable.
BT can happily purchase TalkTalk and ‘wipe’ the debt owed to Openreach (or at least restructure/reduce it).
Prior to the sale, the administrators asked Openreach to wipe a lot of debt as part of a business restructure, BT said no.
It was inevitable that BT were therefore the only viable option and remain so.
VM never had a horse in this race so I’m not sure why they’re criticising the result now.
Instead of VM trying to block competition by buying Netomnia, perhaps they could have focused on TT instead. I wonder if they have been so spooked by the rise of a challenger to them, they’ve panicked and took their eye off the ball. I would bet TT would have been more beneficial to them than having another network with a massive overlap. But who knows.
Make no mistake, buying Netomnia wasn’t to boot number to take on BT, they could do that elsewhere in the market place, this was to take out their number 1 threat City Fibre
Hi,
I would suggest to VMO2 that BT initially taking over the business as they had the necessary ability (mostly money!) to do so was the right approach. They seem to agree with that.
I would then suggest that the pieces of Talktalk be placed on the open market and if the resulting sale price is less than (say) £450m which is BT’s costs plus a premium acknowledging the risk BT took in doing the deal then that difference should be made up by a levy charged on all suppliers of networks to end customers (as a SoLR process that works is an industry problem – not one for the taxpayer).
VMO2 can’t complain about that surely…? They get exactly what they want whilst recognising that probably only BT could have done the job and as part of the industry that created the problem, they need to pay to fix it.
Any process which doesn’t see BT reimbursed for their costs plus a reasonable premium would be morally indefensible and would make finding a buyer in any future telecoms supplier collapses very difficult.
Going back to reality, I think the only outcome of the CMA review and consequent Secretary of State decision (the CMA only get to advise in this case, not decide) might be a resale of PXC (or at least parts of it). I doubt that BT will be forced to do anything with the retail customers. Anything which leaves BT wishing they hadn’t been involved is likely to be an unacceptable outcome.
Don’t care about VM angry rant! Never like VM!
It’s quite funny really as VM Business provide shed loads of backhaul and business connections for TalkTalk. Lots of the anger will be the huge loss of income from this when BT migrate away from VM….
I feel VMO2 now realise that buying Netomnia is a poor choice given the huge overbuild and core infrastructure challenges.
VMO2 are treating customers poorly and staff morale is at rock bottom.
Dear Lutz
Virgin had the chance to ride to the rescue and chose not to. Focussed instead on paying five times over the odds for Netomnia. Perhaps you have become fat and accustomed to being protected by favourable regulation and shielded from competition.
The time for alternative rescue, review and hand wringing has long passed. The options were BT riding to the rescue or TalkTalk collapsing, pulling services immediately and firing staff earlier in the week.
Regards
Lisa
Lutz Shüler’s letter reads a bit like Sham City’s defence of there football fraud. It’s total bull and doesn’t address the reason the TT business found itself in such a financial plight was due to the leveraged buyout by Charles Dunstone and chums at Toscafund in 2021 who loaded up the business with £500 million of debt whilst finance was cheap. Unfortunately the markets changed, rates increased and TT couldn’t afford the repayments on the interest of debt which had ballooned to over £1.5 billion!
Interestingly to ‘raise capital’ the operationally profitable and sought after TalkTalk Business Direct was sold to its own shareholders, Charles Dunstone and Chums!
None of this is a competition issue within broadband sector. TT was a bleeding cash from a business that primarily operates at the low price point of the market and such doesn’t have high net profit margins. They couldn’t invest and service qualities dropped leading to customers leaving in there droves.
Teacher: “Next week is the inter school football final. Neither Team VM nor Team BT have enough players for a full competition team. You can continue to play against each other, but we won’t be able to enter unless one someone wants TerribleTim on their team. Team VM would you like to take Tim? Team BT have already given up some pitch time to let him practice by himself so he could be an asset”
Team VM “No we don’t want him. Too much like hard work to get him in shape”
…Weeks pass…
Teacher “Devenside’s head has asked if we want to enter, last chance!”
Team BT “We’ve already lost pitch play time to TerribleTim, but rather than him have to sit out we’ll take him”
Teacher “Great, see you at the inter school match”
Team VM ” Oh but Sir, that’s not fair we wanted to play and now you’ve given TerribleTim to the other team. We’re going to complain to the governors”
I was a customer of youfibre… I have left with virgin trying to purchase netonmia they would acquire you fibre too in my area we have 3 current networks for broadband openreach virgin and netonmia with virgin taking the other we go back to what we had a few years ago a duopoly I dislike bt I detest virgin media so I am with EE now
Personally blocking this netonmia sale to virgin sale is best for my area
Talk talk uses openreach so isn’t a big of a issue plus all the urgent issues to keep services make it more pressing hence why it’s being rushed thru right now 900 people are employed plus millions who have service because one company stepped in by didn’t have too they could of let the government choose a supplier of last resort
But that would be 900 staff likely out of a job…
Right now we are arguing apples to oranges
Talk talk was finished it has been dying bleeding out for years…. Netonmia is a thriving business people are comparing BT to virgin and saying there buying similar things… There not focus on the companies that are being bought and you will see these 2 things are not the same… At all
Only reason I am on virgin is because I had no other options. I can’t wait for more options in my area so I can swap! The service is crap the cost is crazy and customer support is a joke! I Can not wait for them to not have a monopoly and let me pick a different provider.