Summary Bullets:
• Virgin Media O2, Liberty Global, and Telefónica announce ‘NetCo,’ a wholesale national fiber provider to secure new financing and consolidate the UK altnet market.
• Fragmentation of the value chain illustrates a shift from the end-to-end infrastructure-to-customer ownership model to a layered model focused on separated wholesale and retail operations.
On February 16, 2024, Virgin Media O2, Liberty Global, and Telefónica announced plans to form a national fixed network company (NetCo) in the UK, focused on completing Virgin Media O2’s full-fiber network rollout and opening up opportunities to explore new sources of finance as well as to facilitate consolidation among altnets. The goal is to be positioned as the leading nationwide challenger to BT Group’s Openreach. The NetCo will complete the current ongoing upgrade program of overlaying full fiber on the existing cable network.
Through a wholesale agreement, the NetCo will continue to connect Virgin Media O2’s fixed customer base, providing revenues from day one of operations. However, the parent joint venture company’s mobile assets will not form part of the NetCo, whereas nexfibre, the independent fiber joint venture between Liberty Global, Telefónica, and InfraVia will continue to operate separately with a focus on fiber network expansion into greenfield areas.
Once all planned fiber build is complete, the separate NetCo and nexfibre networks will reach a combined total of up to 23 million premises, covering about 75% of the country. The proposed NetCo venture will be subject to regulatory approvals, so operations will continue as normal in the meantime.
This move comes in the wake of a shakeup at Liberty Global as it looks to spin off Sunrise in Switzerland “to crystallize the value of Sunrise” during H2 2024 and is part of the company’s goal of improving the valuation of its assets. The move also reflects the broader industry trends of disaggregating basic infrastructure from services to maximize addressable markets through wholesale, leverage these assets to realize their inherent value, and attract third-party investment in infrastructure.
The disaggregation of the telecoms value chain is emblematic of the move from vertically integrated service provision to a more horizontal approach, which allows operating divisions to be managed, and increasingly owned, on a separated tier basis that ranges from physical networks through to delivery of services and support to end customers. Essentially, customer ownership is fragmenting into these layers too – hence the rise of NetCos and of ServeCos (service companies). They each have a target customer base, but these now range from operators (both owners and competitors in a co-opetition model) to aggregators and service providers, many of which also resell to a further layer of third-party retail-focused solutions providers.
The model looks simple on the face of it, but it is anything but. Challenges include technology stacks, organizations, contracts, regulations, systems, and networks. However, this evolution looks inevitable as it reflects the ever-fragmenting customer landscape and the need to match network engineering with financial engineering using ‘sum of the parts’ calculations., The desire for much needed additional investment and shareholder returns are driving the market.