BT dealt major blow by O2-Virgin Media mega merger

O2 and Virgin Media confirmed their £31 billion mega merger last week in a move that poses a significant threat to the future of telecoms giants BT and Vodafone.

BT will face increased competition if the O2-Virgin Media mega merger goes ahead, with the deal capable of creating a new giant in the broadband, TV and telecoms space.

With the £31.4 billion deal between O2-owner Telefonica and Virgin Media backer Liberty Global now finalised, the newly created entity plans to rollout new superfast broadband across the UK and launch 5G networks.

‘Combining O2's number one mobile business with Virgin Media's superfast broadband network and entertainment services will be a game changer in the UK at a time when demand for connectivity has never been greater or more critical,’ Telefonica chief executive officer (CEO) Jose Maria Alvarez-Pallete said.

‘We are creating a strong competitor with significant scale and financial strength to invest in UK digital infrastructure and give millions of consumer, business and public sector customers more choice and value.’

The deal is still subject to regulatory approval, but if allowed to go ahead, the mega merger will create a business with annual revenues of more than £11 billion.

BT under pressure from new telecoms challenger

The news of the mega merger between O2 and Virgin Media applies added pressure on BT at time where it is attempting to drive transformational change throughout its business.

In the company’s 2019 full-year (FY) results last week, BT managed to deliver a positive set or earnings amid a challenging environment, with the business delivering results in line with expectations and completing its £1.6 billion phase one transformation programme – one year ahead of schedule.

Despite making good progress, the telecoms provider has had to slow its growth strategy amid the Covid-19 crisis, though the company admitted that it is still unclear just how much of an impact the pandemic will have on its overall performance in 2020.

Due to Covid-19, BT is not providing guidance for its 2020-2021 financial year at this time.

In order to allow BT to cope with the challenges posed by the Covid-19 outbreak and invest in its FTTP and 5G network, as well as finance its five-year modernisation programme, the company has suspended its dividend until 2022.

‘BT is delivering, but is also changing. BT needs to be leaner, simpler and more agile,’ BT CEO Philip Jansen said. ‘This five-year initiative will re-engineer old and out of date processes, rationalise products, reduce re-work and switch off many legacy services.’

How much does it cost to buy UK shares with IG?

There are three ways to ‘buy’ UK shares with IG: spread betting, trading CFDs or buying physical shares. The cost will depend on which method you choose. The table below illustrates how the costs to get exposure to £10,000 of Lloyds stock, which is equivalent to 16,000 shares (quoted at 62.5p a share).

Remember, spread bets and CFDs are derivatives, which come with higher risk and reward than investing.

Cost to get exposure to Lloyds stock

Spread betting CFD trading Share dealing
Action Buy £160 per point Buy 16,000 share CFDs Buy 16,000 shares
Capital required to open £2000 £2000 £10,000
Total fees £20.88 £20.88 £16

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Note: Amounts do not include overnight funding charges and taxes. Spread bets are not subject to tax. CFDs are free from stamp duty, but subject to capital gains tax. Share dealing is subject to both stamp duty and capital gains tax.

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