ALEX BRUMMER: Debt-aholics like Liberty Global need to be weaned off a system destabilising the global economy
John Malone’s Liberty Global is nothing if not brave. Unveiling a £31 billion merger between Virgin Media and O2, owned by Telefonica of Spain, in the middle of a pandemic when mergers and acquisitions have ground to a halt was bound to attract attention.
One theory behind the transaction, code-named Project Pink, is that it could smoke out a bid for Virgin Media by Vodafone.
Virgin has already teamed with Vodafone to roll out 5G mobile networks. There are many reasons to be cool on the Virgin-O2 tie-up.
Badge of honour: John Malone’s Liberty Global would see the amount of debt on its balance sheet increase to £18 billion or so if the deal goes through
Virgin may be a minnow in mobile telecoms, but putting it together with O2 would create a behemoth with enormous market and pricing power. That cannot be good for the consumer.
Liberty Global also has a reputation for smart management of its tax affairs, which could leave HMRC poorer. Among the weapons in Liberty’s armoury is leverage.
It is ironic that Telefonica, which struggles under a debt mountain dating back to its original ambitious bid for O2, will be entrusting its phone network to an entity already burdened with more than £11.3 billion of its own borrowings.
The deal would increase the amount of debt on Liberty’s balance sheet to £18 billion or so. This looks rash at a moment when debt accumulated during the post-financial crisis upswing is hanging like an anvil around the neck of many corporations.
A combination of Virgin’s broadband and entertainment services with O2 might look like a licence to print money. But in the competitive world of telecoms and entertainment, where investment in tech and content is critical, it does not augur well for creating next generation infrastructure vital to the UK’s future.
The detritus of too much debt is there for everyone to see. On the silver screen, debt taken on by Cineworld when it bought Regal Entertainment in 2018 has become an existential threat. In UK shopping, Trafford Park owner Intu is hanging on by a gossamer thread.
Elsewhere in the shopping mall sector, the top-of-the-market purchase by Unibail-Rodamco of Australia’s Westfield for £12.3 billion in 2018 is proving a nightmare in an era of unpaid rents, closed malls and plunging property values. If the current crisis has taught firms anything, it is the danger of over-borrowing.
Indeed, the pressure on advanced countries when the pandemic has passed will be to reshape the financial system so that tax distortions in favour of debt over equity are exposed.
Debt-aholics such as Liberty need to be weaned off a system that is deeply destabilising for the global economy and for jobs.
Flight app
As the UK moves from lockdown to testing and tracking to contain Covid-19, it should come as no surprise that after weeks of neglect, the Government is finally tightening up checks at UK airports.
Quarantine of arriving passengers is among the reasons why the Australian authorities – which before the coronavirus routinely sprayed international passengers with some kind of disinfectant – managed to get a grip on the pandemic.
Sydney is not Heathrow with its annual passenger traffic of 80m, putting it among the top rank of global hubs.
But the whingeing from BA, Easyjet and other carriers over the Prime Minister’s quarantine rules at airports should not have come as a surprise.
To the contrary, carriers and airports should be working flat out on new technologies which would allow less cumbersome procedures.
International Airport Review points to the work being done by IATA and the Airports Council International on One ID, an app that would capture medical data and enable passengers to pre-clear themselves for travel – in much the same way as electronic visa systems are used to stop potential security breaches.
E-gate screens could be programmed to process information and determine whether passengers need further health checks, could be cleared for travel or might be candidates for quarantine.
Airlines would win much more sympathy were they to use already sophisticated technology to protect passengers and communities from disease rather than repelling payment of refunds.
Derring-do
Business has no interest in exposing workforces or customers to the pandemic.
Leisure operators are adapting theme parks in Asia with measures such as mandatory masks, temperature screening and social distancing for employees and visitors.
Naysayers should recognise that with a ‘can do’ attitude even large-scale leisure venues can adapt operating protocols to the coronavirus age. It’s not magic.