By | May 13, 2022
R. Pritchard

Summary Bullets:

  • The incremental consolidation of the UK enterprise telecoms market continues in light of broader national combinations, with further deals inevitable.
  • Although driven by financial imperatives in a highly competitive market, these developments reflect a broader re-segmentation in the context of the current economic environment.

Following the creation of the Virgin Media O2 50:50 joint venture between Liberty Global and Telefónica via the merger of their respective Virgin Media and O2 UK businesses, there has been an increasing pressure on Vodafone, BT, and other players to improve investor returns by creating a greater scale through mergers and acquisitions.

Vodafone reportedly has been facing pressure from activist investor Cevian Capital to combine Vodafone UK and Three UK. Vodafone has also reportedly been looking to acquire TalkTalk, although that rumor has since gone quiet. Nevertheless, it is safe to assume that Vodafone UK is actively looking at expanding and strengthening its base in the UK market.

During BT’s financial year (FY) 2022 reporting on May 12, 2022, BT CEO Philip Jansen noted that the UK’s former incumbent is ‘looking at both organic and inorganic opportunities’ Further details were not forthcoming, but it is unlikely that such activities would be focused on BT’s international arm, so it would probably address either a specific UK niche or product area such as security.

Obviously, any consolidation among the leaders in fixed and mobile networks would be subject to regulatory approval, but now that Vodafone and Three UK are respectively the third and fourth largest UK mobile providers by subscriber base, the hurdles would be lower than when the European Commission blocked a proposed merger between O2 and Three UK eight years ago; the ultimate arbiter this time (i.e., post-Brexit) would be the UK government, which currently appears to have a more mercantilist approach to such activities.

In the meantime, the reseller market, which attracts less media attention but plays a considerable role in the UK enterprise and business markets, continues with a steady drumbeat of consolidation; for example, Redcentric raised GBP100 million on April 27 to go toward new banking facilities, part of which will be used for inorganic growth.

A further driver of this consolidation process is a renewed focus on customer segmentation and associated brand positioning. BT has announced that in the future, its consumer services will be sold using BT’s EE brand, with the BT brand focused primarily on enterprise customers; BT will probably also continue to use its Plusnet brand and operations as a ‘cheap and cheerful’ alternative.

If Vodafone’s deal with either Three UK or TalkTalk (or both) is to be executed, it would make sense for the Vodafone brand to be a premium consumer and enterprise vehicle, with any acquired or joint ventured brand targeting the more price-sensitive end of the market.

These rebranding and repositioning moves make a good deal of sense in light of the current cost-of-living crisis as it impacts consumers, small businesses, and enterprises alike.