Measures taken to separate Virgin Media from its UK network

A weekend report claims Liberty Global hired consulting firm Accenture PLC to develop plans to separate their fixed broadband network assets from their retail ISP products, which would be backed by merger partner Virgin. Media, Telefonica (O2) in the UK. .

By now it is well known that Virgin Media has long had ambitions to launch wholesale products as part of its future plan (here), which ideally needs the support of a large residential broadband ISP. – other than VMO2 itself – to be taken seriously.

Sky Broadband has often been linked to such talks, which may include a co-investment deal, although TalkTalk and Vodafone are also in the framework. But securing such deals tends to require difficult exclusivity deals, which could hamper the wider adoption of wholesale products offered by VMO2 by other ISPs and on which it is difficult to agree.

However, the type of structure VMO2 might adopt for its wholesale products is less clear. For example, the operator could provide third-party ISPs with access to their entire UK network (mainly Hybrid fiber coax for 14.3 million locals), or only their most recent Fiber to the premises (FTTP) based real estate (over 1 million premises).

In the long run, the HFC and FTTP difference may be less relevant, as VMO2 intends to upgrade all of its existing HFCs to XGSPON based on FTTP by 2028 (here). On top of that, they also aspire to expand their FTTP network to reach up to around 7-8 million UK premises over the next 5 years which, when completed, could make their fiber coverage complete. roughly comparable to that expected from Openreach. to build.

REMARK: An expansion of the network on this scale could place VMO2 in a position of significant market power (SMP), which could lead Ofcom to demand a wholesale product whether VMO2 likes it or not.

The operator could then take one of two different approaches to all of this. On the one hand, they might try to keep their network and retail business under the control of a single brand / company, but competing ISPs taking their products wholesale might find such vertical integration to be a difficult pill. swallow due to fair competition concerns – much like BT in the pre-Openreach years – and this can delay adoption.

The alternative, envisioned by Liberty Global long before the announcement of the O2 merger (here), would be to separate (split) their grid access and retail businesses (just as BT and Openreach have made). Essentially, VMO2 would become something of a primary tenant, or primary co-tenant with another ISP, for their wholesale network which itself would exist as a semi-separate business. Establishing complex rules of the game around all of this is not easy.

A recent report by Bloomberg seems to indicate that the two founding parents of VMO2 – Liberty Global and Telefonica UK (O2) – seem to favor a split of the network and have hired a consulting company Accenture PLC to sort out the smallest details (this may also apply to Liberty’s other European networks).

Any transition to wholesale would almost immediately create a major competitor in the market for Openreach, which is good for ISPs and UK consumers. On the other hand, this may force Ofcom to revisit part of its market regulations, as Openreach would have even less influence on certain aspects of the market.

Granted, there is a group, other than Openreach, who wouldn’t be too happy to see VMO2 grow big. Alternative network providers (AltNet), particularly those like CityFibre which operate a similar construction and wholesale model in urban areas; they would undoubtedly feel additional competitive pressures from such a move.

Otherwise, the wait continues for some sort of formal announcement from VMO2.

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