Liberty Global, which owns Virgin Media, and Spain’s Telefonica, which owns O2, said they had agreed terms for joining forces.
O2 is the UK’s largest phone company with about 34 million users while Virgin has about six million broadband and cable TV customers and another three million mobile users. As well as having its own subscribers, O2 provides a virtual network for Tesco Mobile, Giffgaff and Sky Mobile.
The tie-up will create a major rival to BT by bringing together different platforms. Analysts said customers could benefit by having access to more services, although it is unclear whether cost savings from the tie-up will be passed on to consumers.
Telefonica chief executive Jose Maria Alvarez-Pallete told the BBC: “Combining O2’s number one mobile business with Virgin Media’s superfast broadband network and entertainment services will be a game-changer in the UK, at a time when demand for connectivity has never been greater or more critical.”
Mike Fries, chief executive of Liberty Global, said: “Virgin Media has redefined broadband and entertainment in the UK with lightning-fast speeds and the most innovative video platform. And O2 is widely recognised as the most reliable and admired mobile operator in the UK.”
“The merger of O2 and Virgin Media means that BT faces some serious competition in the coming years. Virgin will gain access to a nationwide wireless network to complement its fibre broadband services, while O2 can once again offer fixed-line internet for the first time since it sold its broadband business to Sky.
“While market convergence is not always a positive for customers, the UK still has a well regulated and healthy broadband market with lots of smaller providers filling the gaps left by the big players.
“This merger will put pressure on the bigger providers and could mean that customers benefit from even better deals and services.”
Adds Ernest Doku, mobiles expert at Uswitch.com, comments:
“This merger between the UK’s biggest mobile company and a prevailing broadband giant will create a titan of the telecoms industry that will almost certainly throw down a challenge to the most dominant player, BT.
“It’s a natural and complementary fit, with O2 returning to fixed-line broadband and Virgin Media bolstering its mobile proposition.
“Depending on the regulatory merger process, the deal could be completed as early as Summer 2021.
“This joining of forces is undoubtedly big news – but the most important thing is that customers will benefit rather than lose out. It’s vital that the combined brands maintain the high standards of customer care and service that people have come to expect.
“Both the O2 and Virgin Media brands are expected to remain in the short-term, but it will be interesting to see what this means for existing customers in terms of products and access to extra services, such as O2 Priorities.
“Immediate steps like Telefonica powering Virgin’s virtual mobile network will eventually generate £110 million of annual savings, but duplication means there is the potential for jobs to be cut.
“Nevertheless, for all customers there is the exciting prospect of greater breadth of entertainment and faster speeds to look forward to.”
Telefonica tried to sell O2 to the owner of Three, CK Hutchison, for £10.3bn in 2015. However, that deal was blocked by the European Commission over concerns that it would have left just three major mobile phone operators in the UK.