Virgin Media O2 JV Infrastructure Investment Accelerates UK Broadband Gold Rush

R. Pritchard

Summary Bullets:

• Virgin Media O2 joins InfraVia Capital Partners to spend GBP4.5 billion on a fiber wholesale joint venture (JV) to offer connectivity to up to seven million premises

• As with any other gold rushes, the only guaranteed winners are the folks supplying spades, diggers, and other infrastructure provision services

Virgin Media O2 has announced a partnership with InfraVia Capital Partners to form a JV deal, which is expected to close in Q4 2022 to build a full-fiber network to provide connectivity to up to seven million premises as a complementary geographical expansion to Virgin Media O2’s existing target of 15.5 million premises – delivering a UK fiber footprint of 80% coverage on completion. The focus of the 50:50 JV will be to offer wholesale connectivity services both to Virgin Media O2 (as anchor tenant) and to other communications and internet service providers. The timing of the announcement when BT Openreach employees were on strike is more than a coincidence.

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The move also underlines the challenge that Virgin Media O2 is looking to pose to BT Openreach and CityFibre, and the ongoing fragmentation of the value/supply chain between infrastructure and services – whether delivered as fully integrated solutions from the likes of BT and Virgin Media O2, or via third parties – as per the CityFibre business model which looks to focus on wholesale infrastructure, and leave the relationship with end customers with retail service providers like Zen Internet and Vodafone. The complexity of the market is also underlined by the fact that this is a joint venture with a joint venture, although Virgin Media O2 half-parent Liberty Global already has a partnership with InfraVia in Germany.

Strategically, service providers globally are tending to move away from direct infrastructure ownership (poles and holes) – most notably in mobile mast asset sales, but increasingly also in terms of fixed infrastructure, yielding steady returns on investment as basic connectivity commoditizes.

With so many players looking to roll out fiber across the UK (more than 50 by some estimates), the market is bound to consolidate over time – already there are partnerships and reselling agreements left, right, and center. These will end up in mergers and acquisitions, either directly or when it becomes clear that merely installing infrastructure is not the same as getting customers to use it and pay for it.

Currently, the three ‘natural’ winners will be BT/Openreach, Virgin Media O2, and CityFibre due to their reach and brand strength. Others will likely survive with niche propositions, but the market will not carry dozens of competitors. Engineering needs to be followed up with sales and marketing because having paying customers turns out to be quite important.

What is clear, as with any historical gold rush, is the guaranteed winners are the people installing the fiber: as the saying goes: ‘during a gold rush, sell shovels.’

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