Vodafone UK partners Virgin Media on public sector deal
7 December 2011
Lambeth Council, a local authority in London, awarded a £100m (EUR115m) telecoms services contract to a joint bid from Vodafone UK (VfUK) and Virgin Media Business, the cable operator’s enterprise arm, after earlier deals with their mutual rivals BT Global Services and Orange UK were put out to tender.
The six-year deal, called Project Signal, will see the two providers supply services to around 180 council buildings and 4, 500 users, with VfUK providing fixed and mobile telephony services. Virgin Media Business will contribute data communications and wide area network infrastructure, including a public access Wi-Fi network in key council buildings and libraries. The new deal is said to contain an option to extend the contract for a further four years, as well as the possibility of expanding services to other organisations in the borough, via Lambeth’s “Co-operative Council” programme.
The Guardian reported that the Council hopes to achieve savings of £2m or more over the course of the contract, through “property rationalisation, the introduction of flexible mobile working for staff, and reduced call charges”. The former two elements indicate plans to implement Vodafone’s previously flagged flexible working framework, which VfUK also recently provided to West Berkshire Council, as well as implementing internally (Vodafonewatch, 2009.07).
The move comes following VfUK’s recent reorganisation of its public sector business, with new vertical units targeting central government, criminal justice, health, and local government clients (Vodafonewatch, #89).
Neither VfUK nor Virgin Media suggested their tie-up is more than a one-off, but the companies’ decision to team against BT does lend weight to suspicions over the status of VfUK’s two-way wholesale relationship with the incumbent, including on stagnant broadband and telephony offering Vodafone At Home (Vodafonewatch, #91 and passim).
Virgin Media: growing appeal as infill acquisition for VfUK?
Virgin Media’s successive large enterprise contract wins may strengthen its credibility as a fuller rival to wireline incumbent BT Group, and this could make it more interesting as acquisition prospect to a player like Vodafone, which, in other countries, has shown interest in wide area, fibre, and cable infrastructure, as part of its Total Communications strategy.
Virgin Media could boost Vodafone’s own credentials, at a time when reinvention of telcos as media companies is regaining currency (against the backdrop of growing fear of Internet Protocol-led mobile value-chain disenfranchisement). The cableco is the UK’s number-two pay-TV player and has experience as content creator. Further benefits for VfUK, which was relegated to third-place in the mobile segment by creation of Everything Everywhere, would include market consolidation and bulking up, and significant expansion of its consumer, business, and wholesale portfolios.
Such a deal would have echoes with other OpCos, notably Vodafone Germany, which subsumed the fixed operations of Arcor, operates in the pay-TV market, and has repeatedly been linked with possible cableco acquisitions. The mechanics of a deal could be convoluted, since benefits from optimising expensive debt and tax might be critical. Virgin Media currently has market valuation of £4.5bn (EUR5.3bn) and nearly as much debt.
[Further reference: Lambeth Council awards network services deal -- Guardian, 10 October 2011; Vodafone and Virgin clinch Lambeth deal -- Mobile Today, 12 October 2011.]
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