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(Pocket-lint) - Virgin Media and O2 are set to form a joint venture to create an integrated TV, cable and mobile rival to BT/EE. The firm will also be a major challenger for Sky. 

The news comes after admitting over the weekend that they were in talks to create a joint venture between the two companies that would provide, mobile, fixed and cable telephone and TV services.

O2 is the UK's largest mobile network, with around 34 million customers. Virgin Media has over 5 million customers using its services, but its fibre network is highly prized. 

The move comes only a few days after O2 owner Telefonica sounded a note of caution about the talk, saying on Monday: "The process started between both parties is in the negotiation phase, with no guarantee, at this point, precise terms or its probability of success."

However, Telefonica has been keen to pass O2 on for a while; after the failed Three deal it even thought about spinning O2 off as a public company in 2016. 

The move will surely be looked into by regulators - O2 was the target of a £10bn takeover in 2015 by Hutchison-owned Three. That move was blocked on the grounds of being anti-competitive. 

There is a difference this time around though - the businesses are broadly complimentary. Liberty Media-owned Virgin has a cable TV and phone business and doesn't own any mobile spectrum whereas O2 does. Three, on the other hand, is a direct rival to O2 in the mobile space.

The merger would be a 50-50 joint venture. The announcement talks about the investment that both companies are making in 5G and cable networks - around £10 billion over the next five years. The companies say they can save around £6 billion in savings by joining together. 

Virgin Media uses Vodafone's network to deliver mobile services at present. That would, of course, change if it teamed up with O2. O2 also has Tesco Mobile, Giffgaff and Sky Mobile running on its network as virtual networks (it owns Giffgaff and half of Tesco Mobile). 

Liberty Global had also spoken to Vodafone in the past about a tie-up, but talks didn't progress. 

Providing the deal goes through, the two companies will be joined together in the middle of 2021. 

“It’s a natural and complementary fit, with O2 returning to fixed-line broadband and Virgin Media bolstering its mobile proposition", believes USwitch mobiles expert Ernest Doku. 

“With Vodafone having courted a tie-up with Virgin Media in the past and Three being blocked from acquiring O2 in 2016, it will be interesting to see if today’s news sparks an arms race in the rest of the industry.

“Both the O2 and Virgin Media brands are expected to remain in the short-term, but it will be interesting to see what this means for existing customers in terms of products and access to extra services, such as O2 Priority."

Writing by Dan Grabham. Originally published on 4 May 2020.