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Virgin Media surprises industry watchers by coming out in support of the O2/3UK tie-up, while Vodafone’s chief executive is keen to invest in BT’s network access arm.
It’s unusual for the Total Telecom Friday Review to tackle the same subject on two consecutive weeks, but some of the most interesting events in the industry this week have led us to look again at the U.K. market.
This time last week, BT’s rivals were considering their options after the U.K. incumbent completed the acquisition of EE, putting it firmly back into the mobile sector after a 15-year absence. Seven days later and a number have made some unexpected announcements.
The biggest surprises came towards the end of the week, including Vodafone’s announcement that it is interested in investing in an independent Openreach, should BT be forced to structurally separate from its access networks arm.
"It is clear…that Openreach is very profitable," Vodafone CEO Vittorio Colao said on the telco’s third-quarter results call on Thursday.
"If Openreach were to be spun off we would be considering being an investor," he revealed.
Of course, BT will only spin off the business if regulator Ofcom requires it to do so. In the absence of such a decision, Colao said he expects the regulator to impose certain controls on the business, looking at its service obligations and pricing, for example.
Vodafone is one of a number of U.K. operators to have called for the enforced separation of Openreach in recent months, particularly in light of BT’s EE acquisition, which they fear will increase its market dominance.
On the subject of dominance, the European Commission is preparing its statement of objections – a standard procedure – to CK Hutchison’s planned acquisition of O2 in the U.K. And it became clear this week that the market is divided when it comes to the pros and cons of the deal.
Last weekend Ofcom CEO Sharon White shared her thoughts on the matter in the U.K. press, warning that the merger of 3UK with O2 could lead to higher prices, disruption to networks, and less choice for customers. Given that the European Commission has form when it comes to blocking deals that reduce the number of facilities-based competitors in a market on the grounds of potential harm to consumers, her comments were certainly not welcomed by Hutchison.
Indeed, the Hong Kong telco quickly went on the offensive, announcing a series of pledges clearly designed to win over the powers that be in Brussels.
Co-managing director Canning Fok insisted the mobile operator will freeze prices for five years and will sell off slices of network capacity to "enable other meaningful competitors in the U.K. market to offer services on a completely level playing field."
It is perhaps the likelihood of the sale of assets that drove Virgin Media to declare itself as a supporter of the deal on Friday.
"Any competition concerns can be addressed without blocking the proposed O2/3 transaction," the U.K. cable operator’s chief executive Tom Mockridge declared, to the surprise of many.
The merged entity "could have more to offer consumers and, crucially, more capacity for other providers who want to drive competition in their own right," Mockridge said.
Virgin Media has a well-established MVNO in the U.K. and, as the market trends towards converged services, could well be looking to build on that position.
Last year Virgin’s parent company Liberty Global held talks with Vodafone about the possible combination of assets in certain markets, the U.K. being a likely candidate. Putting together Virgin’s TV and fixed broadband assets with Vodafone’s mobile strength seemed a sensible combination, but discussions collapsed in September.
On Tuesday Vodafone admitted it has resumed negotiations with Liberty Global regarding their respective Dutch operations, but made it clear that the talks do not extend to any businesses outside of the Netherlands.
At the end of the week Colao made it clear that he would not take any questions on the subject though.
"Today I have no further update for you on this," he said.
