Virgin Media O2, along with major shareholders, Liberty Global and Telefónica, has outlined plans to create a national fixed network company to rival BT's Openreach in the UK.
In a statement, the telco said that the NetCo will "underpin full fiber take-up and roll-out," and provide new financing optionality and a platform for potential altnet consolidation opportunities.
The telco even named Openreach in its statement, signaling its intention to go toe-to-toe with the company.
Virgin Media O2 said that the entity will be a fully consolidated subsidiary of Virgin Media O2 and have a neutral impact on the company’s leverage and credit structure.
“This is a logical evolution of our fiber strategy that creates a clear, focused, and scaled network entity within the Virgin Media O2 family which underpins our shift to a fully fiber network and reinforces our position as the leading challenger to Openreach in the market," said Lutz Schüler, CEO of Virgin Media O2.
"Working closely with our shareholders, this network business will provide a platform for potential altnet consolidation and wholesale opportunities in future, offering widescale network choice for other providers, as well as giving financing optionality. While nothing changes today work is well underway and you’ll hear more from us later in the year.”
Schüler has previously touched on the topic of consolidation, saying that Virgin Media O2 is very much "open" to the idea of it.
As recently as November, Mike Fries, chief executive of the operator’s co‑parent Liberty Global, said that "another six or seven" altnets are on its radar as potential acquisition targets.
Virgin Media O2 was linked with a takeover of CityFibre last March, in a deal worth around £3 billion ($3.78bn), plus a £100 million ($125m) takeover of broadband company Trooli.
The entity is set to comprise of the operator’s cable and fiber network assets covering 16.2 million premises across the UK today.
The subsidiary will align with Virgin Media O2's current network strategy, it added, with the aim of completing the company’s ongoing fiber upgrade program.
As part of a wholesale agreement, NetCo will connect Virgin Media O2’s entire fixed customer base.
The company's mobile assets will not form part of the new entity, while Nexfibre, which is an independent fiber joint venture between Liberty Global, Telefónica, and Infravia, will continue to operate separately.
Nexfibre notably completed the acquisition of UK altnet Upp in September, and plans to invest more than £350m ($440m) in Eastern England by 2026.
At present, Virgin Media O2 and Nexfibre collectively have a full fiber footprint covering more than four million premises.
Once the planned build is complete, Virgin Media O2 notes the separate NetCo and Nexfibre networks will reach a combined total of up to 23 million homes.
Virgin Media O2 didn't provide a detailed timeline for a launch, but stated that development of NetCo is underway.
As of late December, Openreach has reached 12.5 million premises with its full fiber connectivity. The telco aims to deliver its FTTP service to 25 million by 2026. Its total FTTP connection base is just over 3.5 million.
Analysts expect further market consolidation
The move to announce a separation of fixed network assets opens up the potential for market consolidation, according to industry analysts.
"The announcement of a functional separation of VMO2’s fixed network is significant, not least because it sees VMO2 become a wholesaler for the first time," said Assembly Research founder and CEO Matthew Howett.
"They will need to make acquisitions of other fiber builders if they are to try and match Openreach’s expansive geographic footprint, arguably adding further pressure to CityFibre. The UK’s broadband market has for a while now needed to enter an era of scaled challengers and this announcement gives a natural home for any future consolidation VMO2 has planned in what is currently a heavily fragmented alt net market."
Talks of consolidation within the telecom market have been a constant theme in recent years, given the amount of altnets (alternative network providers) there are.
CCS Insight director for connectivity and consumer, Kester Mann, anticipates more M&A opportunities for Virgin Media O2 will be on the horizon.
"Creating a new network company with a dedicated team could enable Virgin Media O2 to pursue merger and acquisition opportunities in the fixed-line broadband market," he said.
"With dozens of alternative providers, the UK is ripe for consolidation and such a move would bring Virgin Media O2 crucial scale benefits."