Virgin Media O2 secures £4.5bn investment to expand fibre footprint

Virgin Media O2 has secured billions of pounds in investment for a fibre-building joint venture with owners Telefónica and Liberty Global as the group seeks to challenge BT and smaller rivals that are rapidly laying ultrafast network infrastructure.

The group has agreed a deal for £4.5bn, in part from Telefónica and Liberty Global, alongside investment company InfraVia Capital Partners, to build a new full-fibre network that will provide connectivity to up to 7mn homes. This is in addition to the 15.5mn premises that Virgin Media O2 is at present upgrading its existing fibre network for.

The new network will be open for internet service providers such as TalkTalk, Vodafone and Sky to wholesale broadband connectivity, with Virgin Media O2 acting as the anchor tenant.

A big challenge for Virgin Media O2 is that BT’s networking division Openreach has rapidly accelerated its fibre build, moving much faster than most companies and analysts anticipated. The race is now on among the incumbent, Virgin Media O2 and the smaller so-called altnets to lay fibre across the UK and monetise their networks before others get there first.

“We are now a clear alternative to Openreach — we will have a future-proof network” said Lutz Schüler, chief executive of Virgin Media O2.

The new joint venture is set to expand Virgin Media O2’s footprint to cover 80 per cent of the UK, from roughly 54 per cent today, initially seeking to roll out fibre to 5mn homes not currently served by the company by 2026, with the opportunity to expand to an additional 2mn.

Liberty Global and Telefónica together and InfraVia Capital have each committed £700mn in equity to the venture over four to five years, while a consortium of banks has provided a further £3.3bn in debt financing.

“We are investing billions, creating jobs during a cost of living crisis,” Schüler said.

In contrast, Openreach is spending about £12bn to reach 25mn homes by the end of 2026. It has already reached 8mn homes and thinks it could realistically reach 97 per cent of UK premises by 2030.

Beyond this, more than 50 altnets of varying sizes and ambitions have secured about £15bn from private investors and banks, including KKR, Macquarie, Warburg Pincus, Goldman Sachs and Antin Infrastructure Partners.

They have now passed a total of 5.5mn premises with fibre broadband, have doubled their build speed year on year and have more than 1mn customers, according to the latest report by the Independent Networks Cooperative Association and Point Topic, an analyst firm.

Virgin Media O2 has previously committed £2bn to upgrading its copper network to a fibre-copper hybrid offering for about 15.5mn premises by 2028.

Given that the company’s broadband network already spans some of the densest and therefore most lucrative parts of the UK, some have questioned the viability of the company’s proposed expansion.

“Seven million homes on top of their existing network is a bit bonkers because their existing network already covers the juiciest parts of the UK,” said Oliver Johnson, an analyst at Point Topic. “I think money could be better spent where they have a presence, they have a network, and they have customers.”

Schüler countered that the expansion was the “perfect addition to what we already have”, noting that it would focus on commercially viable towns and expanding Virgin Media O2’s footprint in cities.

“We are getting a lot of demand for our product where we currently aren’t [located],” he added.