Virgin Media sees annual earnings fall, but O2 tie-up ‘on track’ despite probe

Virgin Media has revealed falling annual earnings amid regulatory changes and a hit from the pandemic as its £31 billion mega-merger with O2 also comes under intense competition scrutiny.

The telecoms giant, which is owned by Liberty Global, reported a 5% fall in underlying earnings to £2.08 billion as revenues dropped 0.9% to £5.1 billion, despite notching up its best customer growth for three years.

Virgin Media saw earnings tumble 11.1% in the final quarter of the year as it held off from price rises in 2020 in response to the pandemic and was knocked by lower roaming charges as the crisis saw international travel almost grind to a halt.

Annual turnover was also affected by new rules that came in last year forcing firms to notify customers ahead of their contracts ending and offer better deals.

The results come after the Competition and Markets Authority (CMA) announced in December it was launching an in-depth probe into the Virgin Media mega merger with Telefonica’s O2.

This followed a request from the companies for the watchdog to give the deal the green light quickly.

Liberty Global insisted it was making “very positive” progress with the CMA and is still “on track” for the deal to complete in the middle of the year.

But the CMA has raised concerns that Virgin and O2 “may have an incentive to raise prices or reduce the quality of these wholesale services, ultimately leading to a worse deal for UK consumers”.

Previously, the CMA called on European regulators to block a merger between O2 and rival network Three, although it has previously waved through BT’s deal with EE.

The regulator said in December there was “sufficient evidence at an early stage of the investigation for the CMA to conclude that there is a realistic prospect that the transaction would result in a substantial lessening of competition in one or more markets”.

The merger, first announced in May, would bring together O2’s 34 million customers on its mobile network with Virgin’s 5.3 million broadband, pay-TV and mobile users.

The deal values Virgin Media at £18.7 billion and O2 at £12.7 billion.

Virgin Media’s full year results show the impact of the pandemic on the telecoms sector – with the revenues impact offsetting the boost from a surge in demand for broadband amid the shift to home working and remote learning.

It notched up a 200% rise in broadband customers, with another 148,000 added in 2020 – and 55,000 alone in the fourth quarter.

The group also saw a record number of new mobile contract customers, with 330,000 added in 2020 and 87,000 in the final three months.

While this failed to translate to higher sales and earnings last year, the group said it expects to return to revenues growth in 2021.

Lutz Schuler, chief executive of Virgin Media, said: “With a clear strategy in place we stepped up, adapted to change and pulled together to support the country and deliver as a business.

“As a result, we saw our best customer growth since 2017.”

He added: “Looking ahead, 2021 is going to be a transformational year for Virgin Media.”