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Steps Taken Toward Splitting Virgin Media from its UK Network

Tuesday, Oct 26th, 2021 (11:37 am) - Score 32,136
virgin media o2 network engineer at work 2021

A weekend report claims that Liberty Global has hired consultancy firm Accenture PLC to develop plans for the separation of their fixed broadband network assets from their retail ISP products, which is said to be supported by Virgin Media’s merger partner Telefonica (O2) in the United Kingdom.

At present, it’s widely known that Virgin Media has long held an ambition to launch wholesale products as part of their future plan (here), which ideally needs the support of a major residential broadband ISP – other than VMO2 itself – in order to be taken seriously.

Sky Broadband has often been linked with such talks, which may include a co-investment deal, although TalkTalk and Vodafone are also in the frame. But securing such deals tends to demand awkward exclusivity arrangements, which could hinder the wider uptake of VMO2’s proposed wholesale products by other ISPs and are hard things to agree on.

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However, less clear is what kind of structure VMO2 might adopt for their wholesale products. For example, the operator could provide third-party ISPs with access to their entire UK network (mostly Hybrid Fibre Coax for 14.3 million premises), or only their more recent Fibre-to-the-Premises (FTTP) based estate (over 1 million premises).

In the long run that HFC and FTTP difference may be less relevant, given that VMO2 intends to upgrade all of their existing HFC to XGSPON based FTTP by 2028 (here). On top of that they also hold an aspiration to extend their FTTP network to reach up to another c.7-8 million UK premises within the next 5-years, which by completion could make their full fibre coverage roughly comparable to that of Openreach’s planned build.

NOTE: A network expansion on that scale could place VMO2 into a position of Significant Market Power (SMP), which may cause Ofcom to require a wholesale product whether VMO2 wanted it or not.

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

The alternative, which Liberty Global have been considering since long before the O2 merger was announced (here), would be to separate (split) their network access and retail businesses (much like BT and Openreach have done). In essence, VMO2 would become somewhat of an anchor tenant, or co-anchor tenant with another ISP, for their wholesale network that would itself exist as a semi-separate company. Establishing the complex rules of play around all of this is not easy.

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A recent report from Bloomberg appears to indicate that both of VMO2’s founding parents – Liberty Global and Telefonica UK (O2) – appear to favour a network split and have reportedly hired consultancy firm Accenture PLC to sort out the finer details (this may apply to Liberty’s other European networks too).

Any move into wholesale would almost immediately create a major market competitor for Openreach, which is good for UK ISPs and consumers. On the flip side, this may require Ofcom to review some of their market regulation, since Openreach would have even less influence over certain aspects of the market.

Admittedly there is one group, other than Openreach, that wouldn’t be too happy to see VMO2 going wholesale. Alternative network (AltNet) providers, especially those like CityFibre that operate a similar build and wholesale model in urban areas; they would no doubt feel some added competitive pressures from such a move.

Otherwise, the wait goes on for some kind of formal announcement from VMO2.

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Mark-Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook and .
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Comments
15 Responses
  1. Avatar photo Cecil says:

    The headline is needlessly loaded, in-particular by the word “splitting”, suggesting the separation would be involuntary, i.e. via regulatory action.

    1. Mark-Jackson Mark Jackson says:

      The word “splitting” is neither defined as an involuntary nor voluntary action, so far as I’m aware. It’s a neutral title, but semantics can be fun, although everything is immediately clear from the opening context.

    2. Avatar photo Bob says:

      I would ask for a dictionary for Christmas if I were you.

  2. Avatar photo Darc says:

    Would be great to see VM continue to grow natationwide and become a competitor to open reach. Splitting the company makes an lot of sense if you want to sell wholesale products to the isps.

    1. Avatar photo Bill says:

      You wouldn’t say that if you were a vm customer

  3. Avatar photo Ex Telecom Engineer says:

    Do Virgin Media actually know what they are going to do? And does anyone have any idea what they are realistically capable of achieving? The reason I question VM’s decision making process, is that they signed an MVNO agreement with Vodafone in November 2019, and then merged with O2 around 6 months later; Suggesting to me that they wouldn’t have entered into the VOD agreement, with the O2 merger on the Radar. The merger had a panic feel to it, imo.
    Building a Wholesale business from scratch is a capital intensive project, you have to construct billing systems, and systems to allow testing & control for ISP customer connections, not to mention all the other associated administrative functions for dealing with a wholesale business. I’m not saying it isn’t doable, but I don’t see it as being as simple as just adding customers on behalf of an ISP and billing them per connection.

    1. Mark-Jackson Mark Jackson says:

      They’ve been working on this idea for years, so internally it’s not a new thing. Incidentally, Sky and TalkTalk both now have systems that can cope with multiple operators.

    2. Avatar photo Ex Telecom Engineer says:

      O2 will have billing systems for dealing with MVNO customers too, I’m not sure how easy it would be to use that in respect of VM wholesale. My point was that VM will have to put in the relevant systems to allow monitoring & control of the local connections for ISP’s. They will have to develop systems to allow multiple operators access to their own relevant customer connections, and Firewall each wholesale offering to ensure that TalkTalk couldn’t for example access Vodafone customer connections and vice versa. I suppose VM could just operate a NOC and allow wholesale customers to report faults via a ticketing system, but I suspect they would be overrun with trivial requests for checks from ISP’s, and it would be much less efficient than allowing the ISP remote access for performing their own checks.

    3. Avatar photo Adrian says:

      Not really the O2 merger moved very fast as the EU decided in the end to let the UK to rule on the merger.

      Even then the UK merger comission could have taken an age or even rule against.

      They said no to the 3 O2 merger and the Disney purchase of Sky so the Vodafone would have been a fallback position.

      Now with the volt products virgin will be pushing O2 mobile with Virgin media customers on the now legacy boost products with Vodafone Sims.

      That gives VM 18 months to slowly move all the legacy customers over as they are available to upgrade their contact.

      Look at BT they seem loath to integrate their mobile operations, they have what 3 companies now.

      I think VM are now got a better game plan going forward and I am glad to have sold my BT shares as they seem to be lurching ahead and not really getting anywhere.

    4. Avatar photo anonymous says:

      They’ve hired a bunch of people to make it happen. They have wholesale customers trialling network and provisioning already.

      Control for customer connections? On FTTP or HFC? What controls did you have in mind?

      Testing – what did you have in mind? FTTP either works or doesn’t. HFC it’s some numbers on a screen.

      Think you’ve a strong legacy BT / Openreach / DSL mindset here. Wholesale is way simpler over FTTP.

    5. Avatar photo Nick says:

      HFC some numbers on a screen? Having spent many years working on the HFC network I can tell you it’s a bit more than that! You can get very strange faults that aren’t all that easy to identify. Personally I don’t think they’ll wholesale the HFC network, it’s when they build the XGSPON that they’ll start it

    6. Avatar photo Spurple says:

      You can’t go around telling your employees not to make deals because you’re planning a merger. That would violate rules around insider trading.

      When a merger is happening, only people directly involved in the deal know and they have to keep it secret till agreement is reached and the terms are public.

      So that’s not an odd thing at all.

  4. Avatar photo Ex Telecom Engineer says:

    “When a merger is happening, only people directly involved in the deal know and they have to keep it secret till agreement is reached and the terms are public.”

    I don’t understand what you’re saying, are you implying that the Board of Comcast and VM wouldn’t have known that a merger was on the cards, because someone else was dealing with it when they signed the MVNO agreement with Vodafone?
    Explains everything, looks as though Groundskeeper Willie was working on the Merger deal, while Principal Skinner was arranging the MVNO, and of course neither knew what the other was doing; Since real life isn’t an episode of the Simpsons, I doubt that’s the case.

    1. Avatar photo Ex Telecom Engineer says:

      Apologies I meant Liberty Global, not “Board of Comcast”

    2. Avatar photo anonymous says:

      Unless you know the exact terms of the MVNO agreement there’s no reason to think it doesn’t have some clauses in it to give VM flexibility.

      VM needed an ongoing MVNO deal either way. Had the deal with O2 failed for some reason what then? They had to have contingency.

      The Liberty board wouldn’t have been involved in the MVNO deal. There would have been very few people involved in the merger from LGI.

      Had employer purchased twice. Nothing operational changed beforehand at all, everything including investment decisions carried on even though some of it was immediately binned when the deal went through and the mergers completed.

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