Liberty Global’s Push to merge Virgin Media with 02 Signals the post-Brexit Reality


In today’s short post, a nuanced point that is being overlooked by many in the business press will be discussed regarding the news that Liberty Global, the owner of the UK-based Virgin Media company, is in talks with Telefonica regarding the purchase of its ‘02’ brand. One of the issues that is arising out of this proposed merger, on top of the competition-based issues that will no doubt arise, is how it will be possible and, more importantly, why it will be possible when recent attempts to buy 02 (from a number of companies) have been ruled out on competition-based grounds.

It was reported late last week that Liberty Global – the massive telecommunications conglomerate ran by John Malone that also owns Formula One – was in talks with the owner of 02 – Telefonica – regarding the purchasing of the company. The supposed merger would be a 50/50 split between Virgin Media and 02, and Liberty Global would need to make a payment to Telefonica to equalise the ownership. The move would be an important one for Virgin Media, as it would at once both combine the 34 million 02 customers with Virgin Media’s base, but also provide Virgin Media with a vehicle within which it could provide its own mobile service, which up to this point has been done in conjunction with other carriers. For 02, it is apparent that Telefonica has been trying to offload 02 for a number of years, because even though 02 has recently returned to profitability, the Spanish company is heavily indebted. The company has been in negotiations with a number of other entities regarding the sale of 02, but none have come to fruition, with planned sales to Three and BT falling through – BT opted to purchase EE for £12.5 billion in 2015 instead, and the EU blocked the £10.25 billion sale to Three on competition-based grounds.

However, in today’s business press Telefonica have confirmed that it has entered into talks with Liberty Global (who have more than $7 billion in assets spare after a recent spate of sales across its holdings). It is being suggested in the press that the deal could be finalised rather quickly, with Liberty Global paying Telefonica in the region of £5-7.5 billion to equalise the difference. Yet, it was a comment in the Financial Times last week, from somebody reportedly close to the Virgin Media side of the deal, that raises concerns. The sentence read: ‘Liberty Global, which has been trying to consolidate or sell most of its operations across Europe, sees the UK’s exit from the EU as an opportunity to combine with rivals without facing opposition from regulators in Brussels, a person close to Virgin Media said’. The article itself simply moves onto the next issue, but the sentiment within the sentence above is particularly impactful. Is it the case that European competition regulators are too heavy-handed? Or, is it the case that there is an ‘arbitrage’, in a sense, that is being developed by the UK leaving the EU, in so much that there now exists an opportunity to develop monopolistic, or oligopolistic markets in a crucial sector of the economy – telecommunications? A sceptic may opt for the second understanding, and for the company in question it makes sense to chase the rewards that come with developing such markets. However, for the British consumer, the news may not be so great. Further concentration in the telecommunications market will only lead to increased prices. It may also be an indicator of what the post-Brexit landscape looks like for the British consumer, with monopolistic deals being paraded as successes whilst the knock-on effect is ignored. Of course, this may not be the case, but the economic theory is clear – the development of monopolistic markets tends to lead to increased prices for consumers. How the British Government react to this potential deal will be a good indicator to its views on protecting the British consumer in the long-run, as opposed to its need to favour business and the development of the economy – particularly with the COVID-19 pandemic in mind – in the short-term.

Keywords – telecommunications, 02, Virgin Media, Liberty Global, monopoly, competition, @finregmatters

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