Virgin Media and O2 merger could cause 'seismic shift' in UK multiplay market

Following the news that Telefónica has confirmed the current discussions with Liberty Global regarding a potential integration of their respective UK telecommunications businesses, O2 UK and Virgin Media;

Natasha Rybak, Principal Analyst at GlobalData offers her view on the potential merger’s impact on the UK multiplay market;

“Telefónica’s talks with Liberty Global to combine O2 UK with Virgin Media could lead to major disruption of the country’s fixed, mobile, content and multiplay markets and heightened competitive challenge and complexity for all UK operators. The combination would bring together one of the country’s two largest mobile players with one of its three biggest fixed broadband providers.

“O2 UK is already challenging BT/EE for a leading share of the country’s mobile market, while Virgin Media is battling with Sky for second place in fixed broadband. Cooperation with Virgin Media would be a game changer for O2 UK in terms of its multi-service fixed, mobile and content prospects. Integration would create a multiplay powerhouse with significant fixed and mobile cross-sales potential, bolstered by a solid and established pay-TV platform.

“However, the discussion is still in the preliminary phase. The integration process from agreement to finalization will be highly complicated. Many details would need to be sorted out between the two parties, as well as to the satisfaction of regulators and existing MVNO partners. Rivals across the different sectors would have plenty of time to devise responses, but it would be on the back of a seismic shift in UK consumer market dynamics.

"According to GlobalData, FMC household penetration in the UK – that is, those taking both fixed and mobile services from the same provider, on the same bill – stands at 14%, offering broad opportunities for integrated operators to build multi-service relationships with customers. O2 closed 2019 with almost 26 million mobile subscribers, while Virgin media’s fixed subscriber base was over 5 million at the end of 2019. Convergence of these operations has a potential of boosting the FMC penetration and driving multiplay market revenue up."