It's not just the UK's mobile community that BT has sent into a spin with its £12.5 billion ($19 billion) move for EE. Players in other parts of the communications market are feeling just as queasy at the thought of a merger between the country's biggest fixed and mobile operators. (See BT Offers $19.5B to Buy EE, Why BT + EE Makes More Sense.)
While Three UK , Telefónica UK Ltd. (O2) and Vodafone UK fret that BT Group plc (NYSE: BT; London: BTA)'s fixed-line firepower will give EE a weapon of mass mobile destruction, companies like Sky have been worrying that without a mobile offer they could lose appeal -- and customers to boot (ouch!).
So in this second installment of our brief guide to the players affected by the BT move, we look at BT's big broadband rivals. That means Sky, TalkTalk and, of course, Virgin Media Inc. (Nasdaq: VMED), which is where we'll begin. (See BT & EE Spur UK Sector Shake-Up.)
Bought by John Malone's Liberty Global Inc. (Nasdaq: LBTY) for a whopping $24 billion in mid-2013, Virgin Media is typically cast as the UK's "other" infrastructure player, after BT. That means, of course, it's the only broadband operator that doesn't rely on BT's network to offer services. Like the incumbent, Virgin gets to sell retail services and keep all of the dough. (See Liberty Spies Greater Virgin Synergies.)
Table 1: Virgin Media at a Glance
|FY 2014||YoY change|
|Source: Virgin Media|
The downside is that only half of UK homes and businesses have the option of subscribing to Virgin's cable technology. Where it is available, however, it is an Usain Bolt next to BT's portly jogger (a point that Virgin has emphasized in its advertising), working twice as fast as the incumbent's broadband service (if you compare the premium offers from each player). No wonder BT is looking to the G.fast standard to boost the performance of its network. (See BT Puts G.fast at Heart of Ultra-Fast Broadband Plans.)
Virgin also happens to be one of only two UK players that have already taken the quad-play plunge. Like broadband rival TalkTalk, it has been renting capacity on a mobile operator's network to provide mobile services under its own brand. Even if Virgin's MVNO origins go back many years, rising quad-play competition appears to have spurred BT CEO Gavin Patterson to make his move for EE.
Where this all gets even more interesting is in the identity of Virgin's mobile operator partner. Using EE, of course, gives Virgin access to the UK's biggest mobile network, but it also means Virgin could soon find itself paying wholesale fees to its biggest quad-play rival -- in other words, in a similar position to the UK's other broadband operators.
Patterson has insisted that BT will honor EE's wholesale commitments, but does Virgin really want to be dependent on BT? While no one has so far suggested Virgin is in the market for a mobile network of its own, Vodafone was rumored to be eyeing a takeover of Liberty Global businesses in the run-up to Christmas. That seems far-fetched -- Vodafone CEO Vittorio Colao was quick to dismiss the story -- and yet both Vodafone and Liberty Global must appreciate the potential benefits of a UK tie-up. Heck, one year ago, a BT takeover of EE would have seemed improbable. (See Eurobites: Vodafone Squashes M&A Speculation.)
Next page: TalkTalk