It tried selling it to Three, owned by Hong Kong’s Hutchison Whampoa but European competition authorities blocked it. Then it tried to sell it to the stock market in a flotation, but Brexit hit the markets and the plan was put on ice.
Meanwhile, Virgin Media owner Liberty Global, owned by US “cable cowboy” John Malone, has wanted to get the business ready to cope with the new 5G world for its mobile customers. It struck a deal with Vodafone to put Virgin mobile customers on its 5G network but merging with O2, and using that 5G system, will be far cheaper than buying in the service from a third party.
The two sides also believe “convergence” is the future for the way we all buy our telecomms and media services. This refers to the combination of fixed line broadband services in our homes and mobile and 5G services when we’re on the move. They are betting that most people will eventually want to go to one provider to get the whole lot.
What does it mean for my bills?
Generally, buying your mobile and home broadband from the same supplier should be cheaper. Convergence deals generally are, although the charging structures are often so complicated that it’s hard to tell.
There will be exclusive perks and deals that the two companies will be able to offer – possibly offering cheaper access to Virgin Mobile TV streaming content on your phone, for example. Time will tell.
The two companies are expecting huge cost savings from ending duplication of administration, marketing and so on. Companies always tell you that those savings will be passed on to customers when they merge. Sometimes they do, more often they just keep the cash themselves.
And what does it mean for the services I can buy?
The companies have said the deal will trigger savings and a big increase in investment in its investment in the network – some £10 billion over the next five years. That should mean you’re more likely to get faster broadband and 5G as they now have the financial muscle to roll services out faster. And full fibre broadband means faster gaming, less buffering while you stream TV and much faster internet surfing.
Expect more roadworks as they lay the new fibre in your street, though.
Currently, if you’re a Virgin mobile customer, you can’t get 5G at all, but you will be able to when O2 takes your service over.
Why should the regulators allow this deal when they banned the O2-Three merger?
Because that was one mobile firm merging with another. This time, it’s a fixed line player combining with a mobile operation. BT was allowed to do the same with EE five years ago.
So, who’s buying who?
It’s complicated. Usually in a merger there's one clear winner but this one's slightly different. Telefonica and Liberty will put O2 and Virgin into a 50-50 joint venture. But straight after the deal is completed, the new business will borrow billions of dollars. Telefonica will take out £5.7 billion and Liberty £1.4 billion. That was crucial for Telefonica, which wants to cut its current £33 billion debt pile.
In the weird way that big deals of this type work, Virgin is also contributing a huge backlog of tax losses run up during its multi-billion pound investment programme run up during decades of laying cable. Those tax losses will be used by the combined company to cut its future tax bills and allow it to invest more.
In terms of valuations, O2 is set at £12.7 billion and Virgin Media at £18.7 billion.
What does it mean for the pair’s rivals?
BT is seen as having most to lose as it is the most direct competitor to the newly formed giant. O2-Virgin will have the combined spending power to go toe-to-toe on technology, size of network and marketing muscle to promote their mobile-broadband packages.
Vodafone will lose around £200 million a year from a deal it struck with Virgin last year to take over running its mobile operations. Some sort of break fee is likely. BT’s EE network currently provides the service.
The deal could also be bad news for Sky, which competes with Virgin for TV packages.
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