The parents of Virgin Media (Liberty Global) and O2 (Telefonica), supported by InfraVia Capital Partners, have today announced the creation of a new Joint Venture (JV) to build an XGS-PON based and wholesale focused Fibre-to-the-Premises (FTTP) broadband network that will cover “up to” 7 million additional UK homes.

The proposed plan was first officially confirmed at the start of this year (here). At the time, VMO2 said that it would enable their combined fixed line broadband networks to reach 23 million premises by the end of 2027 (c.80% of the UK) – Virgin Media’s own private network will reach 16 million premises by the end of 2022.

However, unlike VMO2’s current fixed line network in the UK, the additional 7 million premises would be held under a separate company via a Joint Venture, with access being sold on an open wholesale basis to rival internet service providers, as well as VMO2 itself – the latter would act as an anchor tenant ISP.

According to today’s announcement, the new Joint Venture will be 50% owned by Liberty Global and Telefónica, and 50% owned by InfraVia Capital Partners. The new entity will also gain “exclusive access” to VMO2’s construction expertise (e.g. engineers) and substantially all new build activity at VMO2 will be migrated going forward (i.e. everything after VMO2’s planned coverage of 16 million premises).

However, in terms of the build target, the partnership said it “will initially roll out fibre” to 5 million homes not currently served by VMO2’s network by 2026, with the “opportunity to expand” to an additional c.2 million homes. This investment of approximately £4.5bn will provide a major boost to the nation’s digital economy and make a “significant contribution” to the Government’s broadband ambitions under Project Gigabit.

The £4.5bn, which is intended to support the first rollout to 5 million extra homes, is said to be supported by £3.3 billion of fully underwritten financing commitments and up to £1.4 billion in equity commitments. The £3.3bn in that is said to reflect “fully underwritten debt financing from a consortium of financing banks, including a £3.1bn capex facility“.

Mike Fries, CEO and Vice Chairman of Liberty Global, said:

“This landmark agreement with Liberty Global, Telefonica and InfraVia will expand our FTTH footprint to millions of new UK homes, creating the undisputed second national fibre network in the UK. VMO2 has already committed to upgrading its entire existing 16 million footprint to FTTH. This JV will take our aggregate FTTH footprint to up to 23 million homes, reaching around 80% of the UK.

VMO2 will bring significant build expertise, and will benefit from a meaningful off-net growth opportunity and as the anchor client will support attractive returns for the JV – a winning combination. Finally, we are very excited to be working with InfraVia who we already partner with in Germany, and welcome the expertise they bring to the JV.”

José María Alvarez-Pallete, Chairman and CEO of Telefónica, added:

“Telefónica has a recent track record of successfully developing broadband connectivity in many markets through strategic partnerships. These deals help each country firmly increase their competitiveness and digital infrastructure to help their companies and economy thrive.

The UK is, indeed, a growth market for us and we are very excited to be partnering with InfraVia to accelerate access to next generation broadband connectivity to a larger number of UK households and adding to Telefónica Infra’s growing portfolio.

Further to our announcement from earlier this week, Telefónica Infra is now able to add the UK to its list of countries with these mentioned FTTP vehicles, with InfraVia joining the top tier institutions partnered with Telefónica’s operating units in relevant markets such as UK, Spain, Germany or Brazil.”

The transaction is expected to be completed in Q4 2022, which is well-timed as that’s precisely when VMO2 intends to complete their existing Project Lightning network expansion (i.e. the resources will be free for the new JV to harness). Liberty Global and Telefónica were advised by Barclays and LionTree, as well as Allen & Overy. InfraVia Capital Partners was advised by Lazard as well as Linklaters and De Pardieu Brocas Maffei.

Naturally, the new entity will be seeking to attract additional third-party wholesale clients, with some of the probable customers being Sky Broadband and TalkTalk, among others. At this point, our readers will no doubt recall that VMO2 are currently alleged to be involved in a proposed £3bn merger with TalkTalk (here), which could be another way to ensure some support. But such a deal would come as a blow to TT’s primary network partners and VMO2’s rivals – CityFibre and Openreach (BT).

One of the biggest question marks over this is the issue of exclusivity. Big ISPs often seek some degree of exclusivity of access in wholesale, which is understandable. But that can make it harder to secure support from other ISPs, which may in turn impact issues of take-up and promotion of the new network. Getting both VMO2 and TalkTalk onboard would help, but much will depend upon how fair and attractive the wholesale proposition is to other ISPs.

However, it will take several years for the new company to actually build up the necessary coverage, before smaller players would be attracted to join. The company plans to target their new build at homes across the UK, both adjacent to the existing Virgin Media footprint and new areas. But Openreach also plan to cover 25 million premises (over 80% of the UK) by December 2026, so we’d expect overbuild between the two.

Speaking of overbuild, the new company is also expected to bid on some of the state aid supported Project Gigabit contracts (many of which are already out for procurement), but it remains to be seen how much of a role this might play or if they’ll focus predominantly on more semi-urban and suburban areas instead. The first contracts under the Government’s programme are due to be awarded next month.

The other question is around when and how VMO2 will open up their existing network to wholesale, which could have a huge impact given their existing coverage to 54% of UK premises via gigabit-capable broadband.

Finally, the new company will need to build at a significantly faster pace in order to reach 5 million premises by 2026 – that’s about 1.25m per year over four years or 312,500 per quarter. VMO2 only did 114,000 premises in the last quarter, so they’ll need to ramp up quickly from Q1 2023 onwards.

Let’s hope Ofcom wake up and realise VMO2 and this new company are not the same small fries as the likes of Jurassic Fibre and Truespeed. PIA should apply to VMO2 like Openreach to help everyone.

Why should it? Openreach inherited its infrastructure. Virginmedia have an infrastructure which cost a fortune to install and was funded with debt which virgin media inherited. Why exactly should the regulator treat private property in the same vein as Openreach’s infrastructure?

Because it isn’t about who owns the infrastructure, its about companies with “significant market power” – There’s a set of guidelines that would trigger this from Ofcom.

I suspect the bigger issue would be that alot of their builds won’t be using ducting thats useful. e.g. buried tube to toby, toby to premises. It only works where they’ve installed actual ducting people can run other cabling through, and with how the virgin network was hodge-podged together there’s going to be a bit of a post code lottery you’d think.

Wholesaling might be their most effective way of allowing others to use their network. (If they can’t open the physical infrastructure up, I’m sure OFCOM would be interested in the costs for using the wholesale solution, though I suspect they won’t find much wrong as I’d expect VM to put the price pretty low to encourage uptake)

More likely Openreach won’t have to offer PIA in some areas to new entrants only continue supporting existing infrastructure.

Do they have a name for this “Joint Venture” for wholesale?

Not that I could see, but such things usually follow later. In the past it was going to be called ‘Liberty Fibre’ or ‘Liberty Fibre Networks’, something like that, but the involvement of Telefonica and a third partner means they’ll probably pick something more original.

Might go something marketing-y like: First Light Network – A new dawn for the internet age

I’ve had a look on liberty global press release and they haven’t announced anything yet by the looks of it. Will more likely come later

“The company plans to target their new build at homes across the UK, both adjacent to the existing Virgin Media footprint and new areas.”

So there maybe some hope for people being missed out from before.

Are they still planning to upgrade existing HFC areas (and indeed RFoG although that will be easier) to XS-GPON?

Will such upgrades come under this JV?

They are going ahead, some areas like Stratford Upon Avon already have the XGS PON install works happening right now.

I’m not sure if they will come under this JV though I doubt it due to the lower cost (VMO2 said £100 per property so about £1.5bn total) and that the works have already started.

This announcement appears to be related to 4.5 billion pounds joint investment for initially 5m additional FTTP covered homes with an option of up to 2m more in future. At 7m that is around £600 per property (all network elements).

It does not include existing VMO2 areas where the fibre deployment will be a lot less or acquisition of existing Altnet capacity.

I think it will put further pressure on Alnets to turn their investment into revenue quicker before market share is divided more ways. There is a lot of Alnet implementation sitting idle.

The £4.5 billion is the budget for 5 million premises passed: £900 per premises.

The existing Lightning build, including infill, is coming in at £6-700 per premises and this next 5 million will be more expensive.

They probably had to do this JV as a seperate company, since VMO2’s £18 Billion debt would likely have made it difficult to borrow the money. I assume this means the recent TalkTalk speculation was BS?

Or its complimentary? Take the TT customers, slap them on your new shiny network once it’s installed. Phase out TT and leave just your new shiny network with a very large customer base. (Obviously that’d be a fair few years in the making)

Why take over TT at great expense, when the JV could offer them a wholesale deal?

Own TT and they can ensure they end up using the new network. Guaranteed anchor tenant rather than having to split the customer base with TT’s other wholesale providers.

The security of having a couple of million customers ready to be migrated as you build is a big deal.

Most of the alt nets are now pivoting towards installing their own poles and going overhead, even in cities like London. It’s just too expensive and slow to try and go underground everywhere, even with legacy PIA which is in such a poor state everywhere. And then You have the challenge of getting across peoples driveways etc. So I think it’s all about new overhead infrastructure now. If this new venture is going to be building new infrastrure underground, it’s going to be a heck of an expensive project as well as time consuming. By the end of it most customers will already have fibre my other means. Plus both virgin and Openreach are hemorrhaging expertise to the alt nets and contractors. Everyone is fighting for resource at this time.

Far quicker, cheaper and more efficient for a new joint venture such as this to start buying up the various alt nets and piecing them together.

Not all the altnets are, look at zzoomm and cityfibre. Some are all PIA while others it depends on the cost of installing their own ducts (they’d prefer to not have to rely on Openreach in the future).

Reinforced concrete pavements can push the cost of construction up and push towards PIA while ducts full of blockages or have collapsed can push an operator to deploying its own ducts.

Operators are also aware that once they clear PIA ducts (and foot the cost for doing so) other operators quickly come in and build for far less using the cleared ducts.

Netomnia seem to be doing fine with PIA. Minimal use of new poles. Both altnets and Openreach have been burned over them.

Where the Openreach duct and pole networks are in such a mess that all the repair work isn’t economical hanging back and letting someone else fix it is an option.

The budget VM have allocated seems to make it clear their build is going to be largely underground.

It’ll be a good laugh if you can get dual-stack IPv6 & IPv4 from Sky BB on VMO2’s new network but VMO2 themselves still don’t provide it.

I really want the sky broadband team to join vmo2 internet infrastructure so much, BT can go to hell.

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