Liberty Global, Telefonica target 7M U.K. homes in new fiber JV

Liberty Global and Telefonica are forming yet another joint venture (JV) in the U.K., supplementing a fiber-to-the-premises rollout from Virgin Media O2, the companies’ anchor tenant.

Over the coming years, the JV plans to cover 5 million locations that aren’t already served by Virgin Media O2’s FTTP network – with the opportunity to later pass an additional 2 million locations.

Virgin Media O2, the 50-50 JV Liberty Global and Telefonica formed last year, previously unveiled plans to upgrade its entire fixed network to FTTP by 2028, enabling delivery of symmetrical 10 Gbps speeds.

Telefonica and Liberty Global will mutually hold a 50% stake in the JV, with private equity firm InfraVia Capital taking the remaining half. The transaction, scheduled to close by year-end, is worth about $5.5 billion (£4.5 billion) in investments.

Mike Fries, CEO and vice chairman of Liberty Global, claimed the venture will create “the undisputed second national fiber network in the U.K.” BT’s Openreach is the U.K.’s other main fiber provider, adding in April an additional 500 million locations to its fiber buildout target.

“Virgin Media O2 has already committed to upgrading its entire existing 16 million footprint to FTTH,” Fries said in a statement. “This JV will take our aggregate FTTH footprint to up to 23 million homes, reaching around 80% of the U.K.”

Telefonica Chairman and CEO José María Alvarez-Pallete added the U.K. is a growth market and the companies are “very excited to be partnering with InfraVia to accelerate access to next generation broadband connectivity to a larger number of U.K. households.”

InfraVia also plans to make payments to Liberty Global and Telefonica, a portion of which will be linked to the fiber network’s buildout.

Interestingly, the companies did not announce a new wholesale partner for the JV, only that they’re still seeking wholesale clients. New Street Research suggests a well-positioned wholesale client could pose a “future risk” for BT, as the firm expects the JV to reach 27% penetration in the U.K.

“We assume VMO2’s broadband line base can increase from 5.6 million today towards 7.5 million, and we assume Openreach’s share of the U.K. broadband market will fall from 76% today towards 66% by 2030,” New Street’s James Ratzer and Russell Waller wrote. But they implied Openreach’s broadband line base will likely remain “broadly stable,” given overall market growth.

Another unknown factor in the JV, New Street added, is whether Virgin Media O2 signed onto any volume commitments as the anchor tenant. As Liberty Global and Telefonica only own 25% each of the new JV, they may have incentive to “keep as much value within VMO2, rather than sharing it with InfraVia.”