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BT Drops as Liberty Global Switches to Vodafone for Mobile

Bloomberg logoBloomberg 11/6/2019 Thomas Seal

(Bloomberg) -- Liberty Global Plc said it will switch its 3 million British mobile customers onto Vodafone Group Plc’s network, sending shares in its existing supplier BT Group Plc down as much as 5%.

Liberty Global’s local unit Virgin Media doesn’t have its own wireless infrastructure, so it has to buy wholesale access to one of the U.K.’s four national networks.

The agreement with BT ends in late 2021, Virgin Media said in a statement Wednesday. It will start using Vodafone’s network to offer customers faster 5G services before then.

Virgin Media has been paying between 150 million pounds ($193 million) and 180 million pounds a year under the BT contract, according to analysts -- money that will now go to Vodafone in the new deal that runs until 2026.

BT shares were down 5% as of 12:46 p.m. in London, their biggest intraday drop in almost three months.

The deal deprives BT of most of the wireless subscriptions sold through its wholesale division and leaves the company “definitely tighter in terms of the coverage” of its dividend, said analyst James Ratzer at New Street Research.

BT’s chairman said in July the carrier may have to cut payouts to shareholders if there’s no other way to find as much as 600 million pounds ($750 million) annually for a faster rollout of fiber broadband.

The loss of business with Virgin Media will pull down BT’s adjusted annual earnings by 6%, according to Bloomberg Intelligence estimates.

5G Adoption

In a statement, BT said Virgin Media “remains a highly valued customer” and it would continue to provide its wholesale service until the agreement expires.

The switch may make it easier for Virgin Media to offer 5G. All the U.K. networks now sell 5G to their own retail customers, while mobile providers dependent on wholesale access have less control over what services they can offer.

Liberty Global Chief Executive Officer Mike Fries has previously suggested that the so-called mobile virtual network operator deal with BT since 2017 was holding Virgin Media back.

“We would like a clearer access to 5G than we think it says we have over time,” he said at a Goldman Sachs conference in September. “It’s a big number for BT. But if they don’t, we’ll see how that mobile virtual network operator relationship evolves.”

Liberty Global is distancing itself from BT in mobile as it looks to bolster its fixed-line network and step up competition with BT’s national broadband business. Liberty Global’s dependence on other companies to sell mobile access has led to speculation it could buy a wireless network, such as Telefonica SA’s O2, using roughly $9 billion in proceeds from the sale of continental European businesses to Vodafone.

(Updates with analyst comments in sixth and seventh paragraphs)

To contact the reporter on this story: Thomas Seal in London at tseal@bloomberg.net

To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, Thomas Pfeiffer, Jennifer Ryan

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.

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