New joint venture hits the ground running, but its greatest challenges lie ahead
Next week, on 1 December, marks six months since the official launch of Virgin Media O2. With the date fast approaching, it feels like the right time to take stock of the joint venture’s early progress.
The company has been faster out of the blocks than I’d expected, with its first joint product, Volt, launching in mid-October 2021. Volt offers benefits, like a broadband speed boost or double mobile data, to customers who sign up to both O2 and Virgin Media.
Although hardly innovative, Volt is a creditable first step on the path to service bundling. It’ll help attract and retain customers and should improve satisfaction: all classic objectives for any converged operator.
Convergence is clearly a pillar of Virgin Media O2’s strategy. CEO Lutz Schuler has vowed to disrupt the market and bring greater competition to BT; I’ll be keeping watch for a more assertive push in 2022. A logical next step would be to build on its recent partnership with smart home services provider Plume.
A move that received less coverage than Volt, although it could prove just as significant, was extending O2’s loyalty programme Priority to the Virgin Media brand. Priority is one of the main reasons O2 has enjoyed high customer satisfaction and low churn for so long; it therefore makes perfect sense to offer it to broadband customers too.
On the tricky subject of brand, the joint venture looks set to retain both the O2 and Virgin Media names for now. It’s a logical decision, because bringing two companies together is a tricky enough task without juggling a brand refresh at the same time. In any case, both brands are well-known and established — O2 enjoys a good reputation for customer care and loyalty perks, and Virgin Media is known for high-speed broadband and TV.
The company may eventually have to make a tough decision. Running multiple brands means duplicated costs and potential customer confusion. Of course, the challenge with a single brand approach is deciding which one to let go — and then trying to use the surviving brand to sell either broadband or mobile services without having a significant heritage in that market.
The Achilles heel for Virgin Media is its customer service, and it’s important this doesn’t start to tarnish the reputation of the parent brand. It is making improvements, but Ofcom’s latest league table of complaints released last week again made for grim reading, in stark contrast to O2’s performance.
An early decision could be to bring Virgin Mobile customers through to the O2 brand. Virgin Mobile hasn’t been promoted alongside Volt, raising questions about its future. Its 3 million or so customers are currently transitioning from the EE network to Vodafone, in a move that predates the merger (see Virgin Media Puts the Phone Down on EE). They’ll eventually be brought onto the joint venture’s O2 network, so this would therefore seem the ideal time for the company to move to a single mobile brand.
One thing that’s struck me is the dominance of broadband in Virgin Media O2’s marketing so far. Granted, it’s had plenty to talk about — notably a high-profile network upgrade to gigabit speeds that gives it a crucial edge over BT’s Openreach. The company has issued a dedicated press release every month since August to update on its progress. By the end of 2021, all 15.5 million homes across Virgin Media’s broadband network should be converted.
The company’s broadband business has rarely been out of the media since the merger. Its migration to full-fibre networks, a potential move into the wholesale market and efforts to attract an external investor such as hotly-tipped Sky have all generated a lot of discussion. This has meant that the mobile business has taken a back seat during the first six months, and I’m looking forward to hearing more in 2022 as 5G deployment really starts to ramp up.
Another area to keep an eye on is enterprise, which the joint venture hasn’t yet meaningfully targeted but sees as a significant growth opportunity. Expect to hear more about plans to combine the largely complementary units of O2 Business and Virgin Media Business. Customers in this market are typically less brand-sensitive and should be willing to source connectivity, security and managed services from a single provider.
The joint venture should also be given credit for its environmental and digital inclusion efforts. In the summer, O2 launched the Net Zero Hub to offer small businesses advice about how to reduce their impact on the planet. Working with the Good Things Foundation, Virgin Media O2 launched a National Databank to provide free mobile data to people in need. And earlier in November 2021, it unveiled its first electric vehicle as part of plans to transition its entire fleet by 2030.
Virgin Media O2 has made a positive start, but it’s hard not to ponder the strategy of its two owners. Telefonica tried to sell O2 to Three in 2016, and although it has since listed the UK as one of its four priority markets, it’s been busy streamlining its business elsewhere. This has included the sale of its towers business and several deals in Latin America. Meanwhile, Liberty Global has been slimming down in Europe, selling its operations in Germany and central and eastern Europe to Vodafone in 2019 before more recently exiting Poland.
Both sides have the right to initiate an IPO within three years of June 2021, the date the deal closed. Despite Virgin Media O2’s good momentum so far, I believe this is still the likeliest outcome.
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