Virgin Media wants to steal BT's broadband thunder

Martyn Warwick
By Martyn Warwick

Jul 24, 2019

via Flickr ©  Images_of_Money  (CC BY 2.0)

via Flickr © Images_of_Money (CC BY 2.0)

  • New venture will plough billions of pounds into fibre deployment
  • Rival initiative will make full use of BT Openreach assets
  • Other competitors will have access to the new Virgin infrastructure
  • Aggressive move will focus minds at the UK's incumbent telco

In Britain, "superfast" broadband plans are like London buses. You wait in the rain and dark for ages and then two come along together.

Earlier this week TelecomTV ran a story headlined "BT raises the Brexit drawbridge, puts its foreign bits up for sale". The piece covered BT's plans to sell its overseas assets, spend big on fibre-optic broadband infrastructure in the UK and so hope to foster a rise in the telco's long moribund share price. And just a couple of days later comes a research report from Jefferies Group LLC, the New York City headquartered multinational independent investment bank and financial services company, that examines BT's new determination to focus exclusively on its home market even as as it's arch-rival, Virgin Media, announced plans for accelerated fibre broadband deployment in a venture with Liberty Global the holding company that actually owns Virgin. It makes interesting reading.

Liberty's owner, John Malone, nicknamed the "Cable Cowboy" for his buccaneering business style and his frequent and intense past run-ins with the US telecoms regulator, the Federal Communications Commission (FCC), is looking to invest billions of pounds to bring the UK's patchy and partial fibre broadband infrastructure up to snuff, and if that plan comes to pass the pressure on BT to beef up its fibre-optic broadband rollout, sharpish, will be intense.

Mr. Malone is in negotiation with New York investment bank, LionTree, and if the venture is agreed it would be run as a separate legal entity to both Liberty Global and Virgin Media and would also not be part of Virgin Media's ongoing day-to-day expansion of its established fibre network.

And here's the rub for BT. The new Virgin fibre initiative would make full use of Openreach's assets, much to the telcos annoyance and chagrin. Openreach is the semi-detached BT division responsible for the cables, ducts, cabinets and telephone exchanges that connect the vast majority of UK homes and businesses to the national broadband and telecoms network.

For years Openreach kept a hammerlock on the UK's local loop infrastructure, and did everything it could to prevent rival telcos and cablecos from gaining access to and co-locating equipment in its local exchanges long after local loop unbundling was mandated by the UK regulator, Ofcom.  Furthermore, and primarily, by virtue of its de facto monopoly position in the local loop Openreach actually contributed up to 35 per cent to the operating profits of the entire BT group.

In the end, and that end was less than a year and a half ago, Ofcom finally forced BT to divest itself of Openreach and spin it out into a separate entity. However, to this day the parent company's tendrils still reach deep into the supposedly separate company and Openreach still has an 80 percent share of the market. The current plan is for Openreach to deploy fibre to four million premises by the end of March, 2021.

Virgin Media's geographical reach is not as great as BT's mainly because, from the beginning, it concentrated on deploying infrastructure on urban and suburban areas but in 2015 launched "Project Lightning", an ambitious plan to add four million extra premises to its footprint.

Customer reaction and take-up has been good but Lightning has missed its targets. Originally, the project was to have been completed by the end of this year but these days Virgin makes no mention of when, or if, the four million mark will be reached. The company is also coy about the causes of the delay but it seems to be down to slow digging.

Under the terms of the proposed new Liberty venture Virgin would become the "anchor tenant’ of the new network but access would be open to other telcos and cablecos as well. The UK has several smaller broadband "altnets", including City Fibre, Gigaclear and Hyperoptic, that have emerged in recent years as capital funds, that hitherto resolutely ignored telecoms infrastructure projects, have started to invest in the sector.

BT's CEO says he would be prepared to cut the telco's shares dividend to help pay for the sudden dash to superfast broadband. We'll have to wait to see how the market and investors react if he actually does it.

Email Newsletters

Sign up to receive TelecomTV's top news and videos, plus exclusive subscriber-only content direct to your inbox.