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A major newspaper has this morning claimed that broadband giant Virgin Media (O2) have opened non-exclusive talks with alternative full fibre network operator Netomnia (Youfibre, Brsk), which could result in a £2bn deal that would expand VMO2’s network coverage and potentially remove a key competitor from the market. CityFibre are also said to be interested in the altnet.
At present Netomnia (Substantial Group) is one of the UK market’s largest altnets and has deployed their Fibre-to-the-Premises (FTTP) based broadband service to cover 2.8 million UK premises RFS (inc. 400,000 customers) – available across parts of over 90 cities and towns. The group aims to cover 3 million UK premises by the end of 2025 and then 5m by the end of 2027 (inc. 1m customers by 2028).
According to the FT (paywall), two people “familiar with the matter” have claimed that VMO2 and Netomia are now in talks over the potential consolidation deal. Such an agreement, if it were made, may involve a combination between nexfibre and Netomnia rather than Virgin Media and Netomia, which we suspect might reduce the chances of regulatory scrutiny due to nexfibre being a semi-separate company, albeit with shared parentage.
Just to recap. Nexfibre is a £4.5bn joint venture between Telefónica, Liberty Global and InfraVia Capital Partners (here). The network has so far covered around 2.4 million UK premises with their new full fibre network, which is being built by Virgin Media’s engineers. But the operator’s original plan to cover “up to” 7 million UK homes (starting with 5m by 2026) in areas NOT currently served by Virgin’s network of 16m+ premises was recently dealt a blow by Telefonica’s strategic review (here) and currently has no clear plan for going beyond 2.5m premises.
However, we can’t help but feel that a consolidation between these two would be a tough sell, particularly due to there being quite a lot of overbuild between VMO2/nexfibre and Netomnia’s respective networks in urban areas. On top of that, Netomnia has positioned itself as being more of a cutting-edge but low cost broadband disruptor, which differs significantly from Virgin Media’s perhaps more historically premium (pricing) approach.
Suffice to say that such a deal may also be unlikely to go down well with customers of Netomnia’s retail ISPs, many of which will have previously chosen them to escape from major ISPs, like Virgin Media, and their cycle of inflation busting mid-contract price hikes and expensive post-contract pricing. On top of that, there’s the usual complexities over differences in network infrastructure and technology, which could be quite tricky to resolve.
On the other hand, it’s worth remembering that such talks aren’t unexpected in today’s market, particularly with so many altnets being under pressure from competition, rising build costs and high interest rates. Netomnia has been one of the few altnets to continue building through this phase of the market, seemingly with some success, but they’re not immune to the challenges.
Just to underline the above point, the same newspaper claims that CityFibre has also approached Netomnia for talks and that a deal “was still a possibility“. Such a deal would actually seem to make a lot more sense, given how there’s significantly less overbuild between this pair and consolidation would create serious competitive scale in the altnet space (CityFibre covers about 4.5m premises). But it would also create a group that carries a huge amount of debt, which might be an issue for an alternative deal with VMO2 too, depending upon the approach.
In the end, none of these talks should be considered as unexpected in today’s consolidation minded market, where everybody seems to be talking to everybody else. But whether any of this leads to a real agreement and even more serious talks is another matter entirely. Take with a pinch of salt.
