There are reports that Liberty Global and Telefónica are in talks to merge the Virgin Media cable company with mobile operator O2 in a joint venture. Yet it could be a negotiation strategy to create a competitor to a combination between Virgin Media and Vodafone. Either way, a combination of fixed and mobile networks will be crucial to competition with Sky and BT.

Virgin Media has 3.69 million television customers in the United Kingdom and a further 280,000 in Ireland. It has been losing television customers in the United Kingdom for five consecutive quarters, falling by a total of 214,000.

Virgin Media UK 2020 Q1 residential video customer change. Source: informitv Multiscreen Index

There are 5.27 million Virgin Media internet customers in the United Kingdom and another 660,000 in Ireland.

Virgin Media has 3.18 million mobile customers in the United Kingdom and just 97,000 in Ireland.

Telefónica has 25.80 million mobile subscriptions in the United Kingdom, and another 8.71 million through third parties like Tesco.

Deep in debt, Telefónica has been considering options for the O2 mobile business since a proposed £10.25 billion takeover by Three was blocked by European competition regulators in 2016.

A merger of fixed and mobile communications may be more likely to receive regulatory approval.

It would be the largest change in the telecommunications market in the United Kingdom since BT acquired the EE mobile business for £12.5 billion in 2015.

Virgin Media currently sells mobile services that use this network. It was planning to move them to Vodafone as part of an agreement to share networks. This was viewed as a possible prelude to a wider deal.

Talk of an alternative joint venture with Telefonica could simply be part of a negotiation strategy with Vodafone.

A deal to combine the business of Virgin Media with Vodafone in the United Kingdom has been discussed previously but failed to find agreement over the value of the respective companies.

However, Liberty Global sold its operations in Germany, Hungary, Romania and the Czech Republic to Vodafone for 19 billion euros in 2019, having sold its Austrian division to Deutsche Telekom in 2018. It had planned to sell its Swiss operation to Sunrise Communications, but the deal fell through.

Meanwhile, Liberty Global has a joint venture with Vodafone in the Netherlands. The VodafoneZiggo operation has 3.38 million enhanced video subscribers and 5.06 million mobile customers.

Vodafone has 18.06 million mobile customers in the United Kingdom and just under 2.00 million in Ireland. It has just 687,000 fixed broadband customers in the United Kingdom and 280,000 in Ireland.

It has yet to be seen whether Liberty Global will find a partner for Virgin Media with either Telefónica or Vodafone. Either way, the objective will be to create scale to compete with Sky and BT.