Vodafone was left looking out in the cold today as Telefonica confirmed it was in talks to merge its O2 business with Virgin Media.
The UK giant Vodafone was about to take over all Virgin's mobile phone customer base from late next year, running its 3 million phone users on its network. It won the five-year contract in November from EE in a victory for the company which was to have finished a 20 year relationship between Virgin Mobile and BT-owned EE.
The deal would have involved the transfer of more than 3 million customers and, if the EE deal is a decent guide - revenues of around £200 million a year.
However, if John Malone's Liberty Media decides to merge his Virgin Media business with O2, it would almost certainly be scuppered, with the customers moving onto O2's network.
The so-called mobile virtual network operator deal was seen as a big shift in strategy for Vodafone which had never before done such outsourced contracts, unlike O2, which operates Tesco's mobile service.
It was also likely to expand in later years as demand for 5G services become more popular.
Analysts said the impact on Vodafone's UK finances would be entirely down to what kind of compensation it manages to wrest from Liberty for breaking the deal.
BT would also suffer as a result of the deal, if it goes ahead. Not only would it be losing the remaining term of its wholesaling agreement with Virgin Media, but it would, for the first time, face a rival offering both fixed line and mobile services. In fact, Exane analysts believe BT would be worst affected than Vodafone.
Mirabaud bank analyst Neil Campling said BT could be seriously threatened by content deals that a combined Liberty-Virgin and Telefonica-O2 could wrest from media companies.
However, it still remains to be seen whether Malone and Telefonica can reach an agreement, and whether competition regulators, who rejected Telefonica's attempt to merge O2 and Three, would allow it
Vodafone shares fell 1p to 109.3p, BT fell 2p to 111p.
