Telecommunications

Virgin Media agrees five-year mobile deal with Vodafone UK

Virgin Media has agreed a five-year mobile deal with Vodafone after deciding not to renew its agreement with BT. The deal, which will involve more than 3 million mobile customers, ends a 20-year relationship between Virgin Media and BT-owned EE.

Virgin Mobile services will start to move across to the Vodafone network from late 2021 and its 5G products will be hosted on the latter in the near future, the company said. 5G is expected to bring radical change to the mobile sector when it is rolled out across the UK, with broadband-speed downloads promised.

The third-party deal – called a mobile virtual network operator (MVNO) venture – is a significant shift for Vodafone, which has so far resisted signing such agreements in the UK.

Several mobile providers sell own-branded mobile services that are bought in from other companies. Tesco Mobile is perhaps the best-known example, its services provided by O2. Vodafone will supply wholesale mobile network services, including voice and data, to Virgin Mobile and Virgin Media Business.

Lutz Schüler, chief executive of Virgin Media, said: “Twenty years ago, Virgin Mobile became the world’s first virtual operator, and this new agreement builds on that heritage. It will open up a whole new world of opportunity for Virgin Media as we focus on becoming the most recommended brand for customers.”

Nick Jeffery, Vodafone UK’s chief executive, said Virgin had recognised the huge investments his company had made and continued to make in building its mobile network. Vodafone is also trying to squeeze more profit from its network, for example by creating more deals to share its transmission towers.

Ru Bhikha, a mobile phone expert at uSwitch.com, said: “Virgin Media’s decision to switch their mobile network from BT to rival Vodafone comes as a surprise, but the change offers major benefits for the firm’s three million customers. In theory, customers shouldn’t see any disruption when they are moved over from late 2021, and users won’t need to change their SIM cards.”

In January, the media and broadcasting regulator Ofcom said Virgin Mobile generated 11 complaints per 100,000 customers, the highest number in the pay-monthly mobile category.

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Jerry Dellis, a telecoms analyst at the investment bank Jefferies, said Vodafone was likely to have offered much cheaper pricing than BT’s EE was willing to concede. “That represents a material strategic shift for Vodafone, which previously stressed the importance of not allowing [such deals] to undermine retail pricing levels,” he said.

Dellis suggested the market was overstating the impact of the contract loss on BT, calculating that free cashflow would be reduced by about £100m, or 4% of the total forecast in 2023. Nonetheless, investors reacted with concern to news of the contract loss. BT’s shares fell 4.7% to 193p on Wednesday, while Vodafone was flat at 162p.

A BT spokesperson said: “The successful relationship between BT and Virgin Media spans nearly 20 years and they remain a highly valued customer. We will continue to provide a full spectrum of mobile services to Virgin Media and support Virgin Mobile customers under our existing MVNO agreement, until they transition in 2022.”