Virgin Media Boss Confirms Interest in Total UK Network Coverage

The CEO of Liberty Global, Mike Fries, has lent more weight to reports that sibling Virgin Media UK might be planning to establish an alternative network ISP in order to reach into the 10 million or so premises that their existing ultrafast cable and FTTP broadband network does not serve (e.g. rural areas, suburbs and smaller towns).

Last month saw multiple sources claim (here) that Liberty Global and investment bank LionTree were looking at the possibility of establishing a second Joint Venture (JV) business in the United Kingdom, which would form the foundation of a new ISP with Virgin Media as an anchor tenant on their network. This is apparently nicknamed Project Hermes.

The suggestion was that this could be used to extend 1Gbps+ capable Fibre-to-the-Premises (FTTP) connectivity beyond Virgin Media’s existing footprint and, we assume, keeping VM itself safe from the risk of being labelled as an operator with Significant Market Power (SMP) by Ofcom (i.e. avoiding the risk of attracting deeper regulation of their network).

The suggestion was that such a company could initially reach an additional 2 million UK premises, although it would need to attract a fair bit of private investment and potentially also public funding in order to achieve that or go beyond such an ambition (finding full fibre investment in this market shouldn’t be too difficult). Openreach’s existing cable ducts and poles could also be harnessed via Physical Infrastructure Access (PIA).

Yesterday’s post-results investor meeting did not specifically confirm the existence of Project Hermes but at the same time Liberty Global’s CEO made no secret of how seriously they were taking such an idea (i.e. the c.10 million premises outside of their existing UK coverage).

Mike Fries said:

So let’s just say that we are in the mix as we should be in any discussions about building the next wave of networks outside of where we already have built superfast broadband, we feel like our 15 million homes of 1Gbps ready, going to 10Gbps [in the future], is it for that footprint [Project Lighting].

But beyond that footprint, we’re going to be opportunistic to see if we can put capital to work off balance sheet without consolidating losses and activities. Potentially with partners, just to get Virgin possibly in the Virgin Media brand to a national scale, wouldn’t that be great, if Virgin was a national brand not a regional brand in half the marketplace.

We know our footprint, we generate 50% market share. We beat BT. We beat Sky on footprint, in video and broadband, we know that. If we could extend our footprint potentially using other people’s networks or participating in off balance sheet type network construction, that could be pretty interesting.

So it’s all very preliminary, and its work you would expect us to do. But abiding by the points I made in my remarks, which we’re looking at that opportunity at our capital efficient, optimized free cash flow and largely off balance sheet.

During that same meeting Mike also touched on this topic several more times, not least by saying that Liberty Global would be the “most important partner or platform” for anybody looking to tackle the “remaining 10 million homes.” Mike added that, “you should expect us to be exploring every alternative to creatively finance and participate in this expansion of broadband connectivity in the UK.”

Mike also said that the 4 million premises they originally targeted for their Project Lightning expansion the UK (so far they’ve completed over 1.8 million and seems set to continue extending until 2023) is “still attractive to us” and they’re evaluating “how to do that in the most effective and efficient manner.”

Finally, Mike “absolutely applauds” the new Prime Minister, Boris Johnson, for setting out an ambition to achieve total full fibre coverage of the UK by 2025. “On the flip side, we also agree with BT and others that this will be increasingly difficult and expensive for Openreach and undercapitalized fibre alternative networks to achieve, at least without substantial regulatory relief, which puts Virgin in an enviable position,” said Mike before pointing to their strong market position for tackling the final 10 million.