The owners of Virgin Media and O2 have confirmed plans for a £31 billion merger to challenge BT and Sky in the UK.

Virgin owner Liberty Global and O2 owner Telefonica have announced a 50/50 joint venture, which would have 46 million customers and around £11 billion in revenue.

“BT and EE together are a powerful combination in our minds,” said Mike Fries, chief executive of Liberty Global, referring to BT’s £12.5 billion deal to buy the mobile company in 2016. “Our rationale was that it was just a matter of time, convergence has been slower in this market – with Virgin Media and O2 together the future of convergence is here today.”

The new company will invest £10 billion into gigabit-speed broadband and 5G networks.

“Even considering Brexit we have been investing heavily in the UK,” said José María Alvarez-Pallete, chief executive of Telefonica. “It is the right time to commit to the future of the UK by building this value proposition.”

Under the deal, which is expected to complete in the middle of next year, there is an option to float the venture on the UK stock market in three years.

The joint venture will be overseen by eight directors, four each from Liberty Global and Telefonica, with the chairman rotating every two years between the two companies. Fries is set to be the first chairman.

The deal will include recapitalisations which will see Telefonica receive £5.7 billion in proceeds, to Liberty Global’s £1.4 billion. The venture will have with £18 billion in long-term debt.

Mike Kiersey, principal technologist at Boomi, a Dell Technologies business, said the success of this merger will hinge on several factors, most notably the operating model (absorption, standalone or merger of equal), alignment to the business intent and the process to execute the merger.

“Both companies need to understand the importance of a harmonised infrastructure, and the severe implications of a failure to integrate two different systems.

“For the merged company to be run safely and efficiently, data needs to be accessible and wrapped with the correct governance,” he continued, adding: “The ideal scenario for both parties is to be able to access raw data from a single platform, where it can decide which innovation approach to take for their customers, partners and employees.”

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