Virgin surprises market by hopping into bed with BT for MVNO love-in

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Virgin Media has surprised the market by signing a five-year deal with rival BT to use EE's network.

The Mobile Virtual Network Operator (MVNO) deal means BT's EE will provide wholesale mobile network services to Virgin Media, a subsidiary of Liberty Global.

Virgin Media has been relatively late to the 4G market, having only launched its service in November, also giving customers the ability to "roll over" unused data. It currently has 3 million subscribers.

EE has the largest 4G network in the UK, with BT owning a total 42 per cent of the spectrum currently available.

The deal covers voice and data services and replaces an existing MVNO wholesale agreement between the two companies.

However, that contract predated BT's £10.5bn acquisition of EE, which has bolstered the former state monopoly's "quadplay" offering (the marketing term for broadband, line rental, TV and mobile). Virgin is also desperate to enter that space.

Windsor Holden, analyst at Juniper Research, said the deal will be a blow for Three, which had been in the running for the contract.

"There was a feeling that Virgin might not have wanted to go in with a competitor. No doubt Virgin had done some cost benefit analysis of the situation. On the minus side BT will know more about Virgin, but on the plus side there will be less bureaucracy in changing providers and clearly thought its network was more attractive."

Kester Mann, principal analyst at CCS Insight, agreed. "It is interesting that such close rivals in quadplay entered this wholesale deal."

He noted that the deal was similar to Sky Mobile's recent wholesale launch with O2, BT's main rival in the TV space.

But Matthew Howett, telecoms analyst at Ovum, said that while the deal might seem "counter-intuitive", there were many reasons why it was a good fit.

"Sky's MVNO deal with O2 meant that was clearly off the table. And Virgin and BT have been aligned from a policy point of view in both not wanting to see a full separation of Openreach."

Peter Kelly, managing director of Virgin Media, said the deal will give it more "firepower" in the UK mobile market.

Gerry McQuade, chief exec of BT Wholesale and a founding member of Virgin Mobile, said: "[We] are very pleased to renew and extend our 17-year-old relationship. As the largest wholesale provider of telecommunications services in Europe, BT values the economy of scale that Virgin Media brings to our network." ®

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