Virgin Media O2 UK Ponder £3bn Acquisition of Rival CityFibre
A major newspaper has reported that a parent of broadband ISP and mobile giant VMO2 (Virgin Media and O2) has held “initial talks” over the possibility of mounting a £3bn takeover bid for the UK’s third-largest alternative full fibre network (AltNet), CityFibre. But such a deal could face regulatory and competition concerns.
The Telegraph (paywall) actually clarifies in its second paragraph that the talks themselves are said to have taken place between Mike Fries, CEO of VMO2’s parent company Liberty Global, and the CEO of CityFibre, Greg Mesch. As such, this is more a proposal to merge the new Joint Venture company – Nexfibre, which is being backed by Telefónica, Liberty Global and InfraVia Capital Partners, with CityFibre.
Just to recap. VMO2’s broadband base currently covers 16.14 million UK premises and is a closed network (not open to wholesale), which mostly reflects their older Hybrid Fibre Coax (HFC) infrastructure (14.3m premises) and some Fibre-to-the-Premises (FTTP RFoG) lines. The operator is currently upgrading all of this to full XGS-PON powered FTTP by 2028 and may open it fully up to wholesale in the future.
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By comparison, Nexfibre is being treated as a separate company, albeit one where VMO2 is the anchor tenant ISP. The company has committed £4.5bn and aspires to cover “up to” 7 million additional UK homes (here) – starting with 5 million by 2026 (i.e. those homes not currently served by VMO2). The new network will be open to wholesale access for other ISPs to harness. The official build for this has already begun (here).
As for CityFibre, the operator is currently the UK’s third-largest provider of open access full fibre infrastructure to consumers, after Openreach and VMO2. The FTTP network they’ve built covers around 2.5 million premises (2.2m Ready For Service) and they aim to cover up to 8 million premises (funded by c.£2.4bn in equity and c.£4.9bn debt) – across over 285 cities, towns and villages (c.30% of the UK) – by the end of 2025 (here).
It’s worth adding that CityFibre is also one of the few AltNets to attract significant support from major ISPs at wholesale, including big names like Vodafone and TalkTalk.
Competition and Regulatory Obstacles
Suffice to say that any deal between Nexfibre and CityFibre would be likely to face fewer regulatory hurdles than one between VMO2 and CityFibre directly. But market regulators aren’t dumb and would probably still recognise the close proximity of players on the Liberty Global side in the UK, which could still raise wider competition and regulatory concerns. On the flip side, there are a lot of AltNets around and the competition regulator (CMA) may decide that a deal between CityFibre and Nexfibre would thus not be hugely disruptive.
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Naturally, VMO2 would gain from such a deal by effectively removing or neutering a strategic competitor of scale in the full fibre space. Both VMO2 and CityFibre’s networks have a high degree of overlap in urban areas. The Telegraph suggests this could be around 50%, but Thinkbroadband estimates it may be around 60% – 70%. So it’s hard not to see this as being, primarily, a defensive move by VMO2’s parent. By comparison, VMO2’s recent interest in Trooli is much more logically about expanded coverage, due to only a very limited overlap (here).
At the same time, we do know that many AltNets feel as if they’re being placed under incredible strain, both from competition by rival networks of a similar scale and from Openreach’s massive FTTP deployment and related price cuts (here). A period of accelerated market consolidation is now widely expected as smaller players merge into bigger ones, although not all AltNets will be so lucky and some may fail.
In that sense, a tie-up between Nexfibre and Cityfibre would be a useful way of creating a stronger competitor for Openreach, particularly in the wholesale space, while placing the combined operator on a much more secure footing for the future. But whether regulators would buy that, given the close links to VMO2 via Liberty Global, is another matter entirely.
As a side note, it’s interesting to highlight how VMO2’s parent(s) have switched from last year’s allegedly shelved talks over a £3bn tie-up with TalkTalk (focused more on the retail level), to this year’s talk of a £3bn takeover of CityFibre (focused more on the infrastructure level). Both approaches seem likely to face tedious competition concerns, albeit for very different reasons.
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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, BlueSky, Threads.net and Linkedin.
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I really really hope this doesn’t happen, and as you say there is a lot of overlap. Some (e.g Ipswich) with Vermin HFC which isn’t so bad as Vermin do plan to replace HFC and this perhaps saves that, but some (e.g. Weston-super-Mare) with RFoG which is already fttp.
Mostly though I had hoped I had escaped Vermin Media
In Weston-super-Mare CityFibre are duplicating the VM rollout.
Not good for public take up figures. Might affect ALNETS if customers perceive it as being hassle later.
I think this article sums the situation up really well, highlighting all the relevant points surrounding such a deal.
To add to that, CityFibre deserve to disappear into irrelevance and BT to take over as global overlords.
At the moment i can’t get Virgin but CityFibre will be here by the summer so I’m guessing this is where the temptation for Virgin comes from. Cover those homes missed, alongside areas they had either ruled out for cost complications, or had no interest in but CityFibre have highlighted.
I’m hoping the rollout plans CityFibre have in place and the scale of the deployment doesn’t change if this goes ahead.
So all the Cityfibre employees who dodged the recent redundancies will be sweating again.
We still havent found out yet who is going!
Well of course it makes perfect business sense and it’s obviously the start of the consolidations that’s everyone’s been predicting.
I really didn’t think it would be this soon. They’ve hardly got off the ground yet in most cases!
Which is the problem I have with Alt networks, we have Zzoomm here, but how long will it be before they are sold off to another provider? There is one provider I would not touch with a barge pole and I would not like to go to Zzoomm and then end up with that provider, there are a couple of others I am a bit iffy about, but I doubt they will ever buy Zzoomm.
This is the problem, my last energy provider decided to sell up and we ended up on Octopus, while octopus is not a bad company, it could have been worse, and we could have ended up with British Gas. It does bother me with companies changing hands, more than it should do, really.
Will Virgin be able to carry their standard TV services over the cable laid by CityFibre?
IPTV services would work but anything broadcast over the coaxial (CATV) would not.
It would require everything to be sent over the internet.
Virgin tv is pretty much all IPTV now. It could be delivered over anything with an internet connection.
Cityfibre’s (and everyone elses) overheads have been spiralling as inflation bit them hard. The task of becoming competitive became increasingly difficult.
There have been redundancies and the repeated complaints to Ofcom (to try and stop Openreach cutting their prices) as Cityfibre scrambled to try and gain traction and start making a profit, but it’s become very obvious this isn’t an easy task.
Consolidate and become part of a bigger, stronger team is the only way to move forward.
Obviously the consequence of this will be more streamlining and sadly more redundancies, but at the end of the day the big executives at the top aren’t in this because they love and care for their employees, there in it for one reason and one reason only… to make money.
Interesting.
Mark – just a typo here – “staring with 5 million by 2026”
Thanks Alex.
I hope this doesn’t happen. Cityfibre are rolling out in my city and they’re my best chance to escape Virgin Media.
I am with you on this Mike. CityFibre infrastructure in my town is live. I looked forward to being able to get better customer service. By that I mean being able to speak to someone without jumping through thousands telephonic prompts only to speak to a person who can’t help. That and being able to use routers of my choice rather than having to use VM’s equipment.
Cityfibre’s investors aren’t going to keep pumping money into a sinking ship.
To remain afloat Cityfibre must consolidate and become a bigger player, it’s the only way they will increase their take up percentage and ultimately start making a profit.
The industry is bound to consolidate. All these small Alt Net’ are not large enough to survive. It will go the sane way that Cable TV went. It will probably go down to tow or perhaps 3 Alt Nets
It would bot surprise me if Sky moves into the market. They re moving away from delivering TV by Satellite so it would make sense to have their own Broadband network rather than using a third parties
If so, Sky have been really slow on this, unless they just want to enter solely by acquisition?
I think Sky may be struggling a bit with what strategy to adopt in today’s new and much more complicated market. Instead of rushing in, they seem to be playing it safe with Openreach and avoiding any dramatic moves. Part of that may be because they haven’t been able to reach favourable agreements with other AltNets, or perhaps they were never really all that serious about doing so in the first place. Either way, they feel like a stationary Battleship.
It’s really interesting. Comcast know infrastructure. They’ve tens of millions of homes passed with cable in the USA and that’s their jam.
They’re relatively infrastructure light in the UK: rely on Astra SES for the satellite broadcasting, do have their own core network though limited in reach, rely on Openreach to reach customers and use Openreach, SSE, VMO2 and others for backhaul between Openreach and their core.
They seem far more interested in leaving the UK infrastructure light and selling content. The only acquisition that would really make sense for them if they wanted to get into infrastructure is VMO2, anything else is too small to be worthwhile.
Maybe they’d purchase CityFibre if it came to it. Would need to be part of a series of acquisitions.
I think Sky are being remarkably prudent – what they’re particularly good at is being a content packager and re-seller, not an infrastructure business. Running infrastructure requires huge balance sheets, specific skills in network design, asset management, procurement, partnerships, corporate finance etc. VM show the difficulty in being all things to all people. Whilst Sky managed their satellite distribution assets very well, that’s progressively becoming history and in a world of multiple fixed line (or even MNO) broadband providers there’s no point trying to get into the very crowded terrestrial networks market.
@Bob: “It would bot surprise me if Sky moves into the market. They re moving away from delivering TV by Satellite so it would make sense to have their own Broadband network rather than using a third parties”
One problem is that by the time that Openreach and the JV of Liberty Global, Telefónica Infra and InfraVia have completed their builds the AltNets will have only a small share of the market. Why would Sky, the second biggest ISP, want the cost and hassle of getting into this networking market when it can use its muscle to strike very favourable deals with the big boys to carry its broadband, video and voice traffic.
Sky are focusing on stability for the next 3 years because of the economy. I highly doubt it wants to build residential infrastructure. But Comcast, I’m not sure? Maybe? Probably not realistically.
Sky is not yet ready to play with altnets. Look at Seethelight (OFNL) for example, these customers still not been brought onto the Sky network. There were plans to integrate CF and then eventually OFNL but they were shelved around Nov 2022 by execs. We are all missing out on the Comcast xFi router and the Plume pods being brought over here. However the Plume pods are still being delivered since Italia has them integrated with the Hub 4. But once Sky brings Plume to the UK, Rebel Internet loses their USP lol
But from what I heard Comcast might be wanting to shed some weight off Sky.
This is now extremely stressful, again. I was lucky to keep my job during the recent redundancies but now I’m finding it difficult to concentrate on my job as it’s obvious more jobs will go.
We all know consolidation lies ahead, it’s been predicted so many times, it’s obvious the market is saturated and there’s simply not enough customers to make it profitable for all the Altnets.
For me personally I’ve had enough, I need more stability and would like to relax and enjoy my work rather than looking over my shoulder wondering when my time is up.
The Cityfibre ride was fun while it lasted but it’s time to move on.
I’ve decided I’m out and already looking for a new direction and I’m sure some of my team members will be doing the same.
All the best, DF.
For VMO2 this might be a smart move. If most of the overlap is in areas where VMO2 has coax and not FTTP then it will save them a lot of work in converting the network.
Also as Cityfibre are a wholesale provider, it will help get the VMO2 wholesale offering off the ground. Hopefully if the deal goes ahead it will have the condition placed on it that the combined VMO2 / Cityfibre network has to offer wholesale access.
Could indeed help get VM’s wholesale business off the ground, as there seems to have been little progress there but given that VM are all about pizazz and never good at execution, it seems to me VM would be biting off more than they can chew.
From the outside it’s clear VM have too much already going on – VM-O2 merger still grinding on, the XGS-PON build out is going to be costly and technically complex and the budget doesn’t include drop links, VMO2 corporate performance remains grim and value destroying, and VM’s corporate culture is still retail NTL. Buying CF would make those things worse, not better.
Unfortunately big corporate M&A is always done so the execs get free lunches with merchant bankers and can make sweeping, inaccurate generalisations about progress and growth, rather than for good sound business reasons. Rather like Sainsbury’s bosses, who paid £1.4bn for Argos to “future proof their business” and realise the “massive growth potential”. As any sane person expected, Sainsbury’s management then crashed the Argos business into the wall, with cumulative losses now around £350m and no meaningful growth over the six-seven years since. Expect the same from any VMO2 deals. Or ask a Vodafone investor for advice, since they’ve been repeatedly burnt by decades of inept M&A.
These discussions don’t involve VMO2. They’re as involved in this as BT’s retail arm were in BT Group’s decision to acquire EE.
This is all Nexfibre: https://www.nexfibre.co.uk/liberty-global-telefonica-and-infravia-capital-partners-form-jv-to-build-a-new-fibre-network-in-the-uk-covering-up-to-7-million-homes/
Probably not, but worth looking at the contrasted footprints of VM and CF over at Thinkbroadband. With a couple of exceptions like Worcester and Milton Keynes, the CF footprint massively overlaps VM, and the idea that this could be purely a separate business, that just happens to be owned by VMO2’s parents looks well odd. How can VMO2 be an anchor tenant for a new multi-billion network of which the ex-CF assets would be a huge chunk, when VMO2 already has assets in almost entirely the same place? Of course, the proposed deal could well fall part after ten minutes due diligence, and in that case I think the only people who’d cry would be CF’s investors.
Certainly seems odd. Trooli then Hyperoptic would make much more sense as far as footprint goes.
Hyperoptic are definitely getting acquired at some point soon. Those lovely MDUs and new build agreements will be well liked.
Another kick in the teeth for CF employees.
Virgin Media 02 was very fast to build in most Parts of Tower Hamlets on Tower Hamlet homes properties after signing way leave agreements.
They are still building my parents have in there building which is Tower Hamlet home property Community Fibre, Virgin Media 02 and soon get Hyperoptic.
I live across the road from my parents which is a Housing Association property Swan Housing only get Hyperoptic but there good with the pricing no mid contract hike
Was hoping City Fibre would one of the ones that survived, and we would end up with at least 3/4 large network.
Just as predicted, the inevitable consolidation begins. It’s obvious there’s no other way.
Hold on tight, it’s going to be a bumpy ride and we’ll lose some good people along the way.
Hope to see you on the other side.
It’s going to be tough but I don’t think it will go as far as loss of life.
Waiting for the update with a statement from Greg Mensch…
Hostage video number 2
Absolutely disgusted that CF have not prepared some kind of statement for their employees on the back of this!
We’re all part of the team, were all looking out for each other, we’ve all got each others backs.
Hmmm, doesn’t quite feel like that.
Where are you Greg?
Why would they care about the actual workers?. I mean how they been handling the clusterf**k of redundancies I wouldn’t expect them to have another all-hands call and tell us another few lies.
Interested to understand Gregs view of a duopoly now!
Please god no. This needs to be stopped they have already killed O2.
What a shame!
I hope the regulators look at public feedback which I am sure will highlight how both VM and BT use their market position to arm twist customers to pay higher prices when contracts are up while also keeping mid contract price hikes.
We dont need to provide more market power to VM or BT, whether that happens remains to be seen. It makes sense to force VM to sell a significant chunk of their business to even look at acquiring CF.
Why do people think regulators would even attempt to block this?
Seeing as this new company would still be smaller than the incumbent Openreach on what grounds do you think this could be blocked?
I can’t see anyone even objecting to such a deal nevermind it being blocked.
Oh God, that means my current speeds will drop from a steady 500mb/s to 300mb/s, but I will still be paying for 500mb/s and at peak times they’ll drop to 2mb/s and every complaint will be totally ignored and I will have to expect that at peak times internet speeds are generally rubbish.
So… as a City Fibre employee who is up on the chopping block currently in the redundancies ( A poor state of affairs that is) … if i make it through this round where does this then leave me once again?? Do i have to sit here for all of 2023 sweating that i wont have a job by the end of it. Jeez give the people a break.
Nice to hear about these kind of things on ISP Review and not from our own company, tells me how much im valued – Cheers CF!
Then move on now mate, don’t wait for CF (or new owners) to give you the shove (or tell you’re you’re doing everybody else’s job for the same pay you were on). Anybody at the sharp end of telecoms delivery has hugely marketable skills, and should make the most of that. You may have to change employer every 18 months as the sector consolidates, but waiting around for a stat minimum pay off is madness.
No company discusses merger and acquisition stuff with regular employees. Even after things like this have leaked an immediate statement is rare.
If the deal is finished you’ll likely get a note at the same kind of time that it’s released to the wider world via press statement. Maybe a bit before but on the same day.
Unless you’re involved in the negotiations it’s need to know and you don’t. It’s harsh but that’s how it is.
Im not suprised about this news, I am however shocked at the lack of communication and transparency around this between the company and it’s employees.
Considering one of CityFibres values is “Back Each Other” – as an at risk employee, I do not feel backed at all.
Yes this could be considered as a natural step for a company with such big investors and yes it happens, it’s business – however what CityFibre have NOT been is honest and they have not acted with integrity.
Our views do not matter – many of us feel used and many many promises were made which turned out to be lies.
So when you hear about what a great company CityFibre is and how they really look after their employees and how they are not like the other Telecoms companies out there – they totally are. They are liars. Hope the big bosses are happy with themselves – put your feet up with a hot mug of horlicks whilst I figure out a way to keep a roof over my children’s head.
Can’t wait to leave 🙂
Come on Greg, where are you?
It’s dark in here!
On Holiday Apparently
I am looking forward to that all-hands call.
Cue Greg with some quote from some philosopher about change is good
“As for CityFibre, the operator is currently the UK’s third-largest provider of open access full fibre infrastructure to consumers, after Openreach and VMO2”
Is VMO2 really the second largest provider of *open access* full fibre infrastructure?
So much noise here in the comments.
The CF business plan was never to break even by this point. They are mostly on track with their build.
There’s always lots of discussions ongoing about both acquiring and being acquired. Some of these get leaked to the press, others don’t. Nothing else at this stage. It’s not an imminent sale!
According to the news article, the discussion was between Mike Fries and Greg Mesch.
So I assume it must have been one of them that leaked the story to the press.
Not a wise move in my opinion.
@Anon Yes of course there’s a lot of noise, what do you expect? It’s an important and interesting story.
£3B?! That’s over £1,000 per prem passed. Virgin said they could upgrade to fibre for £100 per prem. City Fibre have hardly any customers, so Virgin wouldn’t be getting much of a customer base.
Something doesn’t add up. Is this Greg’s wishful thinking again?
25%+ take up in established areas is very good. Guess a lots of areas are still new though.
Agreed this new story doesn’t add up, appears to be an article with little substance.
Cityfibre barely have any customers? Source?
Well, it did originate in the Daily Telegraph, so what else did you expect?
Happy days ! Be great for Virgin Media if they can get hold of this and expand to places they never dreamed of before .
Unfortunately city fibre has not been run properly and its a sinking ship . However with the experience of virgin it should be able to handle a takeover relatively easily . Also will give customers more confidence in a legendary name in Broadband services
I hope this is sarcasm
Perfectly performed Pump n Dump.
Identify target market.
Create company.
Offer high salaries to recruit skilled, experienced staff.
Pump it to get investors onboard.
Go into competition against big players.
Agree sale to highest bidder.
Dump staff who’ve been following you religiously, hanging on your every word.
Walk away with millions stuffed in your back pocket.
Mission accomplished.
Find your next target market (maybe in another country) and repeat.
VirginO2 CEO last month reckoned altnet takeup was very low at 15-18%.
There is a reason why Virgin are not risking their legacy areas with exposure to Nexfibre investment.
Alt nets will get 20%-30% take up. The worry for Virgin is that the Openreach based ISPs will have a better product which they can sell more cheaply than Virgin Media can, and will destroy VM who will be left with a legacy network and worse TV package than Sky. They will lose market share to the Openreach based players, not so much to the alt nets
What Nexfibre do isn’t VMO2’s call either way and uptake isn’t dissimilar to VMO2’s lightning areas after the same period of time.
James: do you know the uptake of Openreach FTTP and if they’re taking customers from VMO2 or converting their own existing customer base from FTTC to FTTP? Looks like it’s almost entirely the second of those.
Get your dirty fingers off Virgin
When being a “challenger” against the “dreadful incumbents” actually means “I have a vendetta against openreach I actually quite like virgin” ~ CityFibre, probably
Probably not so when they make you redundant as their only interest is the fibre in the ground
Oh no, but CityFibre are better than VM02, lol