Virgin Media O2’s potential TalkTalk bid a ‘major statement of intent’

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Virgin Media O2 acquiring TalkTalk would be a “major statement of intent” by CEO Lutz Schuler as the company looks to take on BT, according to Kester Mann, director of consumer and connectivity at CCS Insight.

On Friday, reports emerged linking the two companies with a potential deal that could see for a valuation of around £3 billion.

Mann believes that the primary motivation for Virgin Media O2 to buy TalkTalk would be for greater scale.

“In telecoms, the most successful companies tend to be the largest and bulking up would offer clear synergies and cost-saving opportunities,” Mann says.

“As Virgin Media continues its extensive upgrade of its entire cable network to full fibre, the more customers it can connect, the more cost-effective the process will be.”

Mann adds that acquiring TalkTalk would improve its “underwhelming” position in the business market, and this was highlighted as a key area to improve by Schuler.

Buying a value-for-money provider would allow the company to expand its presence into the entry market which could be particularly relevant given the likelihood of a sustained period of economic uncertainty.

The potential deal would not only create a bigger rival to BT, but “threatens an important source of income for Openreach, for which TalkTalk is a strategically important customer”.

TalkTalk could now see itself at the centre of a bidding war, with Sky and Vodafone also rumoured to be interested.

“With the UK ripe for further consolidation amid much speculation of a potential merger between Three and Vodafone, the next big deal is only a matter of time,” Mann says.