The CEO of Liberty Global, Mike Fries, has said they’ve made “significant progress” on their plan for opening up Virgin Media’s existing UK fixed line broadband network to wholesale (rival ISPs) via a new business (NetCo) during the first half of 2025 (here). Fries also confirmed they had received “proposals from a handful of the strongest infrastructure investors” for a stake in the biz.
Just to recap. The merged business of Virgin Media and O2 (VMO2), which is backed by parents Telefónica and Liberty Global, published their latest quarterly results yesterday (here), although this included very little detail on their NetCo plans, except to say that it was “on track” to “support the long-term underpinning of fibre upgrade activity and take up“. But we’ve since got a bit more detail as part of a related investor call.
At present, Virgin Media’s existing fixed line broadband network, which covers just over 16 million premises via a mix of Hybrid Fibre Coax (HFC) and FTTP (RFOG and XGS-PON) lines, is a closed platform that does NOT allow rival ISPs full access via a wholesale product (although there are some limited / niche arrangements with OFNL and Home Telecom etc.).
As a complement to the above, VMO2’s parents – Telefónica and Liberty Global (inc. support from InfraVia Capital Partners) – also setup a £4.5bn joint venture called nexfibre in 2022 (here), which is deploying an open access wholesale full fibre (FTTP) network to reach “up to” 7 million UK homes (starting with 5m by 2026) in areas NOT served by Virgin Media’s own network of 16m+ premises. Virgin Media is currently the only official ISP on this network (here) and nexfibre has already covered over 2 million premises.
However, in February 2024 VMO2’s parents finally confirmed the long-awaited announcement that they would be opening up Virgin Media’s closed network to wholesale via a new NetCo business, which they said was expected to go live during the first half of 2025.
Recent media reports have indicated that VMO2 may have made progress on their efforts to raise an additional investment of £1bn to support the NetCo project (here), which is understood to have recently received several non-binding offers from investors (potentially including BlackRock and CPP Investments etc.). The effort could hand such investors up to a 40% stake in the NetCo business. The CEO of Liberty Global, Mike Fries, has now confirmed those reports and provided a small update to investors.
Mike Fries, CEO of Liberty Global, said:
“We also announced last year our intention to create a fixed NetCo in the UK market to accelerate and fund a portion of our fibre [FTTP] build out and to provide a vehicle for what we expect will be a rapidly consolidating infrastructure market. And I’m happy to report that we are making significant progress on this front.
The operational and financial perimeters of the UK NetCo have been established. They represent around 16 million homes and over £1 billion of EBITDA. But more importantly, as of last week, we are in receipt of proposals from a handful of the strongest infrastructure investors in the business who have indicated an interest in participating with us in what will be, I think, the only viable long-term competitor to BT’s Openreach, so more on that to come.”
At present, the combined FTTP base of both nexfibre and Virgin Media is 6.4 million premises passed, which will of course rise rapidly as their HFC + RFOG areas are upgraded to FTTP and nexfibre continues its network expansion efforts. This is already a significantly larger potential wholesale base of FTTP lines than their closest altnet rival CityFibre can muster (4.3m), albeit still well below Openreach’s 17m+. But by 2028 the combined group could reach up to 23 million premises, which would be hard for even consolidated altnets to reach, albeit still below where Openreach will be (c.27m, rising up to 30m by 2030).
The big challenge for such a NetCo will be in its ability to attract significant ISP support, at least beyond those already owned by the wider group (i.e. O2, Virgin Media, Giffgaff). Potential ISP partners will be looking to be treated fairly (wholesale agreements), which is always a tricky thing to balance vs the desire by some for exclusivity agreements. One benefit of Openreach’s heavily regulated business is that it affords ISPs some protection against unfair practices, and competing with that is a challenge.
The need to deliver attractive pricing is another difficulty, particularly given Virgin Media’s own retail reputation for hefty post-contract (after discounts) pricing. Alternative networks in this space have been aggressive on price and associated ISPs are often able to offer promises of “no mid-contract price hikes“, which is something that the established giants tend to struggle with.
Lutz Schüler, CEO of VMO2, told investors:
“I mean, as you know, we are not publicly differentiating in our net add growth between our existing coverage and nexfibre. So therefore, you get the blended number. I think underlying, of course, it shouldn’t be a surprise for you that in the BAU coverage, we are losing customers, small amount, but we are losing it. And in nexfibre, we are growing because we are penetrating a new network.
Now what I can tell you is that our losses in our existing coverage are significantly less to other big market players. This is what we believe. But aggressive [alternative networks], yes, with very aggressive prices, are getting some customers also away from us.”
Nevertheless, over the longer-term, Virgin Media going wholesale is still a big deal for the market and one that will trigger plenty of disruption for everybody (retail ISPs, alternative networks, Openreach and even Virgin Media’s own retail base), while at the same time increasing market complexity for consumers (as if it wasn’t already confusing enough).
However, this approach will ultimately sink or swim based on whether or not it can get the core ingredients right, and ideally attract support from key ISPs, such as Vodafone, TalkTalk and Sky Broadband (all three already have agreements with Openreach and CityFibre). The market is likely to go through some big changes over the next few years as all of this plays out, so buckle up.