Liberty Global’s agreement with Telefónica to combine Virgin Media and O2 in the UK presents a big chance to cross-sell products, including potentially targeting lower-end customers, according to Liberty CEO Mike Fries.
Speaking at Bank of America Securities’ 2020 Telecom & Media Conference online, Fries said that some 80% of Virgin customers have some other mobile product which gives the new JV and “huge opportunity” to sell O2 products to that base, along with sales of Virgin products to the O2 customer base, said Fries.
“The brands enrich each other,” he said.
O2 has some lower end brands and Virgin could look to target that market, he said.
“This could give us an opportunity to take a run at that,” he said.
Fries said he expected the deal to secure regulatory approval, but he was confident of approval because “fixed mobile deals do not reduce competition” and because the UK deal was similar to other agreements that Liberty Global had struck previously.
Fries said that o2 was the right asset and Telefónica was “the right partner” but that the deal “does not take other strategic partnerships of the table”.
Liberty has been pursuing the strategy of creating fixed mobile challengers in multiple markets, said Fries. He said that the company was happy to be a buyer, seller or partner depending on the case.
“You need scale to drive 5G,” he said. “Converged products work brilliantly. FMC works in Europe. Third, you also get huge synergies from putting these businesses together.”
He said that the other main benefit is “massive value creation”. Investors were getting “zero value” on the UK asset. He said there was US$14 that Telefónica put on the share and the US$6 billion in synergies put a further added a further US$6 a share.
“We are trying to shrink that value gap,” he said.
Fries said that both parties had agreed that O2’s towers and Virgin Media’s network including Project Lightning infrastructure “should be in the deal”.
He said that Virgin Media already reached “half the country with one Gig [broadband]”, giving the company an opportunity to get ahead of the competition.
Fries said that Liberty’s “position on wholesale has evolved” and that it now sees the benefit of wholesale in Belgium – though not in the Netherlands. He said that in the UK the company was only filling about 40% of its capacity, so tapping wholesale could help fund network expansion.
“We are thinking that through,” he said, although the company would not accept being forced to do so as a regulatory remedy.
On the COVID-19 crisis, Fries said that the company had been able to run “darned close to plan” with good customer volumes since the crisis had begun to subside.
Cutting costs therefore “is not the first thing on our list” and Virgin Media is being compensated for the loss of sports.