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(Adds source comment, closing share prices)
By Paul Sandle
LONDON, Nov 6 (Reuters) - Britain's Virgin Media is ditching
BT's mobile network for rival Vodafone from late
2021 in a five-year deal that will allow it to launch new
services such as 5G to its more than 3 million customers.
Virgin Media, which offers cable TV and broadband services,
pioneered the mobile virtual network operator (MVNO) model,
whereby a company offers own-branded mobile on an established
partner's network.
It has used BT's EE network for nearly 20 years, including
before BT owned it, but its customers will be switched onto
Vodafone's network in 2021 after the company won the new
contract.
BT, Vodafone and Telefonica's O2 have all launched
5G services for their own customers, and Hutchison-owned
Three has a 5G home broadband product.
MVNOs typically target the value segment and rarely lead
with innovations like 5G, which requires an expensive compatible
handset and a top of the range contract.
A source close to BT said the company was not prepared to
offer Virgin the mix of technology and data it wanted at the
price it was willing to pay.
Virgin wanted significantly higher data allowance growth,
requiring more investment, and 5G from the start of the
contract, which would have eroded BT's technological advantage,
the source said.
BT's shares closed down 4.7% on Wednesday. Vodafone ended up
0.3%.
Jefferies analyst Jerry Dellis said Vodafone was likely to
have offered much cheaper pricing than BT was willing to
concede.
"That represents a material strategic shift for Vodafone,
which previously stressed the importance of not allowing MVNOs
to undermine retail pricing levels," he said.
The market was exaggerating the impact for BT, he said,
calculating that free cashflow would be reduced by about 100
million pounds, or 4% of the total forecast in 2023.
Vodafone had largely shunned major MVNO in its home market,
unlike rivals such as BT's EE and Telefonica's O2, which
provides the network for Tesco Mobile and Sky Mobile.
Vodafone will supply wholesale mobile services including
voice and data to the Virgin Mobile and Virgin Media Business
customers under the deal, which runs until 2026.
Virgin said it would offer 5G on Vodafone's network earlier
than the transition of existing services.
Lutz Schüler, Virgin Media CEO, said the partnership would
deliver benefits to customers, including 5G services in the near
future, and bring mobile and broadband connectivity closer
together in one package for one price.
Vodafone's UK chief executive Nick Jeffery said Virgin had
recognised the huge investments it had made, and continued to
make, in building its mobile network.
The group is trying to squeeze more profit from its network,
for example by creating more tower sharing deals.
And it already knows Virgin's owner, U.S. group Liberty
Global; the two joined forces in the Netherlands in
2016 and Vodafone bought Liberty's network in Germany this year.
BT said Virgin remained 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," it
said.
(Editing by Louise Heavens, Susan Fenton and Giles Elgood)
