Vodafone has downplayed the need for any takeover activity in the UK market to beef up its fixed-line presence and said it will not be making a counterbid for Virgin Media after the cable operator last week announced a £31.4 billion (US$38.8 billion) merger with O2, Vodafone's biggest mobile rival.

Quizzed about his intentions during an earnings call with analysts this morning, CEO Nick Read said he was "very happy with the organic strategy" and confident Vodafone could thrive as a mobile-only company in the UK telecom sector.

If approved by regulators, the tie-up between Telefónica-owned O2 and Virgin Media, a subsidiary of European cable giant Liberty Global, will create the UK's biggest provider of fixed and mobile services after incumbent BT and could pile pressure onto rivals that cannot easily sell bundles of different communications products.

Some analysts think the deal could spark other merger activity in the UK, with Kester Mann, the director of consumer and connectivity research for CCS Insight, arguing that it would leave Vodafone badly exposed.

"Vodafone UK appears the biggest loser as the deal lays bare its weak position in the market for converged services," he said in emailed comments last week. "It also looks certain to scupper its virtual network partnership struck with Virgin Media in 2019."

"We think this deal will trigger a ripple effect on the UK market: Vodafone, Three, Sky and TalkTalk will all be assessing their positions and further deal-making can't be ruled out," said Mann.

Virgin has until now relied on a wholesale agreement with BT to provide mobile services, but it was due to switch to Vodafone next year before it announced the O2 deal. The loss of Virgin as a wholesale client will clearly put a dent in Vodafone's future business.

While that issue was not addressed on this morning's call about recent financial results, Read said he was "delighted" by the recent performance of his UK business and told analysts he believed Vodafone had the "right formula" for continued success.

Results published today showed that UK service revenues were up 0.5% in the recently ended fiscal year, to about €5 billion ($5 billion), while adjusted earnings rose 10.5%, to €1.5 billion ($1.6 billion), thanks to cost-saving measures.

Vodafone has yet to provide details of headcount for the last fiscal year, but employee numbers fell by 1,700 in the two years to March 2019, or roughly 13% of the total.

Although Vodafone lacks a fixed-line network to address consumer broadband needs, it has relied on wholesale arrangements with BT and CityFibre, a smaller company with ambitious fiber-rollout plans, and Read still believes these are sufficient.

"Whether BT, CityFibre or others, we have access to wholesale so we can offer a converged product," he said in response to questions.

Vodafone UK registered 751,000 broadband customers at the end of March, a tiny fraction of the 5.3 million served by Virgin, but it has been growing fast and gained another 64,000 subscribers in the first three months of this calendar year.

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Read also appeared to dismiss the need for a strong TV product in the UK, arguing it is already an "OTT [over-the-top] market."

"Netflix's penetration is around 45% – compare that with Germany of more like 15% or 20% – and the ARPUs [average revenues per user] on TV are very high in the UK, which offers an opportunity around cord cutting," he said.

In the enterprise sector of the UK market, Vodafone already owns fixed-line assets following its £1 billion ($1.2 billion, at today's exchange rate) takeover of C&W Worldwide in 2012, giving it the ability to provide "convergence" services for business customers, said Read.

"The business part is 50% of our [total] business in the UK, which is a lot higher than many of the operations throughout Europe," he said. "Ourselves and BT combined are just under 80% market share of business and therefore we are in a strong position as the challenger against BT."

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— Iain Morris, International Editor, Light Reading