O2 and Virgin Media in Merger Talks

One of the largest entertainment and telecoms firms in the UK could be formed as a result of a potential merger between broadband provider Virgin Media and mobile operator O2.

A major rival to BT would be formed by the joining of these two big players in the media and telecoms sectors.

Telefonica, the Spanish firm which owns O2, confirmed that they were in negotiations with Liberty Global, the owner of Virgin Media.

However, Telefonica highlighted that the talks were ongoing and that there was no guarantee of a deal being reached.

"The process initiated by both parties is in a negotiation phase, not being able to guarantee, to this date, neither the precise terms nor the probability of its success," said Telefonica in a statement issued today.

Virgin Media has refused to comment on the situation.

O2 is the largest mobile phone network within the UK, having some 34 million users. O2 also provides the networking infrastructure for mobile virtual network operators Sky Mobile, Giffgaff, and Tesco Mobile.

Virgin has around 3 million mobile users, as well as another 6 million customers for its cable TV and broadband services.

A merger between the two companies would put increased pressure on BT, which owns EE, the second-largest mobile network in the UK.

BT provides its services to 28 million broadband, mobile, and TV customers throughout the UK, as well as having an additional 1 million business customers.

Back in 2015, Telefonica attempted to sell O2 to CK Hutchison for £10.3bn. CK Hutchison owns the mobile network Three.

The deal was eventually blocked by the European Commission as it was concerned that there would only be three major network operators left in the UK as a result.

Telecoms analyst at PP Foresight, Paolo Pescatore, believes that a deal between Virgin and O2 would not face the same objections from the European Commission.

Pescatore says that the two companies operate in slightly different domains, with O2 focusing on mobile, and Virgin Media focusing on cable-based services such as broadband and TV.

"It's very much complementary," Pescatore said.

When explaining what a joining of the two outfits could look like Pescatore said: "If you're an O2 customer, you'll be able to buy more than just mobile.

"If you're a Virgin Media customer, the vision - ultimately - will be that you can buy everything in one place with one bill, which isn't the case today.”