- Concentration Agreement with Liberty Global to integrate O2 and Virgin
Telefónica has announced an operation to create the leading telecommunications operator in the United Kingdom, through a merger of its O2 brand with Virgin Media, through which Liberty Global operates. Today, this joint venture would have a value of 36,000 million euros, a customer base of 46 million and a turnover of 12,600 million euros.
What business does Telefónica have in the United Kingdom?
That country is one of the four markets in which the multinational has concentrated since the end of last year, along with Spain, Germany and Brazil. There, the company is already chaining 15 consecutive quarters of revenue growth , including the first of 2020 in which the coronavirus is already being noticed. There, the churn or O2 cancellation rate is very low, at 1%, which gives an idea of the role that brand takes on there, owned by the Spanish company and the largest mobile operator in that country according to the number of accesses. Telefónica's turnover in the United Kingdom, 1,739 million euros this quarter, is more than half that achieved in Spain (3,078 million).
What purpose would this operation serve?
Beyond the economic magnitudes, two concepts explain this project: convergence and synergies, to create the leader of the telecommunications sector in the United Kingdom. José María Álvarez-Pallete, CEO of Telefónica, has delved into convergence when it comes to perfecting its business model in Spain: the call for more implies a greater number of services that is inevitably associated with high rates and a greater number of income. The ARPU of a convergent client in Spain stands at 91.8 euros per month, compared to the low data implied by other usual contracts in the sector, such as mobile-only ones. Precisely, the leading position of O2 in mobile can be complemented with that of Virgin Media as a leader in ultra-fast broadband, ready to be present soon in 15 million homes. Telefónica's experience with the deployment of fiber in Spain, especially widespread, has brought the two companies closer together to develop a joint strategy in the United Kingdom. The brand to be prioritized for commercialization has yet to be decided, according to Telefónica executives.
Who is at Liberty Global?
This British company led by John Malone is one of the main converging telecommunications companies and operates in six countries on the continent, under different brands such as Virgin Media, Telenet and UPC. The company, specialized in cable, connects 11 million subscribers to 25 million TV, broadband internet and telephony services, as well as mobile and WiFi.
Unlike the O2 case with Telefónica, to which it belongs, Virgin Media is not part of Liberty Globa l, but it is a commercial proposal. The Virgin group, globally recognized and also British, has different trade mark agreements for the world, such as this one with Liberty or the one it has signed this year with the Basque operator Euskaltel for the expansion throughout Spain of the company.
Is the operation safe?
Approval is expected in the middle of next year. The fact that Telefónica is concentrated in the mobile business and Liberty Global in landlines believe in the Spanish multinational that plays in favor of authorization, even without the need for conditions or remedies . The fact that there are around 450 telecommunications operators in the competitive continental market and that the economic situation is extraordinarily negative also rounds in favor of a boost, although the origin of the operation would go back to last year. In addition, in 2017, the European Commission gave its approval to the merger of British Telecom (BT) with Everything Everywhere (EE), without remedies , despite the fact that it served to consolidate the country's main telecommunications operator so far.
Other precedents, however, are not so rosy: Brussels previously knocked down, in 2016, the sale of O2 to the Hutchison group , based in Hong Kong and highly relevant in the British market, after reaching an agreement of some 13,000 million euros. It is not clear, however, that the final decision will remain in Brussels, as it could fall to the UK for Brexit if the Commission chooses to refer the verdict to the UK Markets and Competition Authority (CMA). ).
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- José María Álvarez-Pallete
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- European Comission
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