O2 and Virgin Media join forces to face BT

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The deal was announced on Thursday by Telefonica (TEF), the Spanish telecommunications giant that manages O2 and Liberty Global, the US broadband provider that holds Virgin Media.

The companies are looking to form a stronger “mobile competitor” with the new British joint venture, which will be shared equally. Combined revenue will be around £ 11 billion ($ 13.6 billion), while the deal estimates O2 at £ 12.7 billion ($ 15.7 billion) and Virgin Media at £ 18.7 billion ($ 23, 1 billion).

Virgin Media, part of the American media empire of billionaire John Malone, has 3.3 million mobile subscribers in the United Kingdom, as well as 6 million cable service customers.

The deal “creates a new telecommunications power plant to compete with BT,” said Jasper Lawler, research manager at the London Capital Group, in a note to customers Thursday.

BT’s shareholders suffered another blow on Thursday when the company announced which would have suspended dividend payments in 2021 and would not have provided prospects due to the “uncertainty created by Covid-19”.

The company’s shares plummeted by more than 9% in London, while Telefonica shares rose slightly in Madrid.

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By partnering, Virgin Media and O2 will be able to cut costs, with annual “synergies” expected to reach £ 540 million ($ 667 million) five years after the deal closes, they said. Virgin Media’s business in Ireland is not included in the agreement.

The merger is expected to close in the middle of next year after obtaining authorization from regulators.

The partnership is meant to be “a turning point in the UK at a time when the demand for connectivity has never been greater or more critical,” Telefonica CEO Jose Maria Alvarez-Pallete said in a declaration. “We are creating a strong competitor with significant size and financial strength to invest in the UK digital infrastructure.”

This investment will include £ 10 billion ($ 12.3 billion) in the next five years, the companies added.

The merger is good news for UK broadband users, according to analysts.

“Increased competition would encourage investment in a country that needs better and wider fixed broadband access, while also reducing BT’s dominant position,” Fitch Solutions wrote in a report Dexter Thillien and Michela Landoni of Fitch Solutions.

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