Virgin Media O2 and its shareholders, Liberty Global and Telefónica, have proposed a new wholesale network company (NetCo) to become a new alternative to BT’s Openreach for wholesale wireline last-mile access.
NetCo, according to the company, will provide a full fiber rollout, new financing options, and a platform for competitive provider consolidation opportunities.
“Interestingly, they specifically mentioned this as a platform for potential future consolidation and "financing optionality," which sounds like it might be open to private investment, as with its new fiber jv (which will remain independent),” said Julian Watson, principal analyst, Wholesale Telecoms at Omdia on LinkedIn.
Focus on fiber
A big focus for NetCo is to provide fiber-centric broadband services.
The new venture, which will be a fully consolidated subsidiary of Virgin Media O2 and have a neutral impact on the company’s leverage and credit structure, will comprise the operator’s cable and fiber network assets covering 16.2 million premises across the UK today, with all upgraded to total fiber in the coming years.
While Virgin Media did not provide a specific fiber network competition timeline, NetCo will focus on completing the company’s ongoing fiber upgrade program, which sees the existing cable network overlayed with total fiber. The structure also gives optionality and flexibility for future financing and plays a role in potential competitive provider (or altnet) consolidation alongside pursuing wholesale opportunities as a scaled network alternative.
Watson noted that Virgin O2’s move won’t be without its challenges.
“Upgrading the network is one (difficult) thing; executing consistently and reliably on service provisioning, maintenance, customer service/effective communications, etc., will be no less difficult,” he said. “As a retailer, Virgin Media 02 is the most complained about broadband, landline and pay TV provider (mostly around its complaint handling). It'll be interesting to see whether other major ISPs want to hop on to the Netco network.”
Virgin Media said its O2’s consumer and B2B units and its mobile network, which together make up one of the UK’s largest communications providers, will continue to serve millions of customers with a range of connectivity services. Through a wholesale agreement, NetCo will connect Virgin Media O2’s fixed customer base, providing revenue and attractive cash flow from day one of operation.
The company’s mobile assets will not form part of the NetCo, and nexfibre, the independent fiber joint venture between Liberty Global, Telefónica, and Infravia, will continue to operate separately, focusing on fiber network expansion into greenfield areas.
Driving scale
When the planned fiber build is completed, the separate NetCo and nexfibre networks will reach a combined total of up to 23 million homes, which will see fiber network competition at scale in the UK, reaching around 75% of the country. Virgin Media O2 and Nexfibre have a fiber footprint of more than 4 million premises today.
In 2021, Virgin Media O2 launched plans to overlay fiber to the premises (FTTP) across 15.5 million homes by 2028 at an estimated cost of about £100 (US$136) per home passed. Since it plans to take an all-fiber approach, Virgin Media O2 will not upgrade its cable network to DOCSIS 4.0.
It will continue to use the legacy HFC network to serve customers who need hundreds of megabits per second and use the new FTTP network to support customers who need multi-gigabit services.
The NetCo unit is developing between teams at Virgin Media O2 and its shareholders Telefónica and Liberty Global. Further details and operational timelines will be announced in future data and subject to any necessary regulatory approvals. Virgin Media O2 maintains its last-mile fiber upgrade will continue.
“This is a logical evolution of our fiber strategy that creates a clear, focused, and scaled network entity within the Virgin Media O2 family, which underpins our shift to a full fiber network and reinforces our position as the leading challenger to Openreach in the market,” said Lutz Schüler, CEO of Virgin Media O2. “Working closely with our shareholders, this network business will provide a platform for potential altnet consolidation and wholesale opportunities, offering widescale network choice for other providers and giving financing optionality. While nothing changes today, work is well underway, and you’ll hear more from us later in the year.”
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