Liberty Global and Telefónica will combine the British operations of their respective subsidiaries, Virgin Media and O2, in a £31.4bn ($38bn) agreement.

Known as Project Pink, the new joint venture will see both businesses take an equal 50 percent stake - should it receive regulatory approval.

This deal unites the UK’s second-largest broadband network with mobile operator O2, which has 26 million customers and 34 million non-direct clients, via brands such as Tesco Mobile. The agreement values O2 at £12.7bn ($16bn) and Virgin Media at £18.7bn ($22bn), including their respective debts of about £18bn ($21bn), the group said.

The two companies will form the largest fixed mobile provider in the UK – O2

Bright future ahead

As part of the deal, Telefónica will receive £5.7bn ($7bn) in cash to help it reduce its debt, along with an equalizing payment from Liberty Global of £2.5bn ($3bn).

Liberty Global will take £1.4bn ($1.7bn) in cash after spinning off Virgin Media’s Irish business, which will not be included in the merger with O2.

The new partnership expects to invest £10bn ($12bn) in the UK over the next five years. Forecasts expect the business will bring in £11bn ($13bn) in revenue and have a combined portfolio of 46 million customer accounts by 2021.

Virgin Media’s existing three million mobile customers from EE will be moved over to O2’s network.

Mike Fries, Liberty Global CEO, will become the new chairman of the merged company. “We couldn’t be more excited about this combination," he said.

"Virgin Media has redefined broadband and entertainment in the UK with lightning fast speeds and the most innovative video platform. And, O2 is widely recognized as the most reliable and admired mobile operator in the UK, always putting the customer first. With Virgin Media and O2 together, the future of convergence is here today.

"We’ve seen the benefit of fixed-mobile-convergence first-hand in Belgium and the Netherlands. When the power of 5G meets 1 gig broadband, UK consumers and businesses will never look back.”

José María Álvarez-Pallete, chairman and chief executive of Telefónica, said: “Combining O2’s number-one mobile business with Virgin Media’s superfast broadband network and entertainment services will be a game-changer in the UK.”

Consumer group Which? called on the Competition and Markets Authority to investigate the deal.