Further UK telecoms mergers following Virgin-O2 deal unlikely — Bloomberg Intelligence

According to BI, a lack of viable options is likely to curb talks for further mergers in the UK telecoms industry, following the Virgin-O2 deal, which was approved back in April.

A midterm deal between Sky and Virgin-O2 to create a communications giant can’t be ruled out, in BI’s view, providing parent companies Telefonica and Liberty with an exit path.

BI also expects that interest in ITV is likely low, but the television network may still be a long term fit for BT or Virgin-O2.

It’s also believed that Vodafone and Sky may consider combining to create a third infrastructure-based converged-player, but Vodafone’s enterprise-customer bias, along with more pressing domestic issues faced by Sky’s US-based parent company Comcast, could hold progress back.

From here, Vodafone may look again to negotiate with now privately-held TalkTalk, to boost scale in the broadband market and improve full-fibre economics, with TalkTalk having previously hosted its mobile virtual network operator (MVNO) on the Vodafone UK network up until 2015.

Mobile carrier Three, meanwhile, looks set with its go-it-alone strategy, following the merger with its Irish sibling in early 2020.

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“Our analysis highlights that there aren’t many more UK telecom deals that make much strategic sense,” said Matthew Bloxham, senior analyst for technology, media and Internet at Bloomberg Intelligence.

“Out of the deal possibilities we have identified, only a combination of Sky and Vodafone could rival the synergy opportunity created by the merger of Virgin Media and O2.

“Cash-flow generation capacity is becoming more important as investment demands increase to build full-fibre and 5G networks.

“Acquiring TalkTalk may have given Vodafone better negotiating leverage with full-fibre infrastructure platforms such as Openreach and CityFibre, but the synergy prize would’ve been small. TalkTalk has already significantly cut operating costs.”

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Aaron Hurst

Aaron Hurst is Information Age's senior reporter, providing news and features around the hottest trends across the tech industry.