Virgin Media O2 Sees UK Broadband Growth as Nexfibre Expands UPDATE
Virgin Media and O2 (VMO2) has published their latest Q1 2023 results, which saw broadband customers grow to total 5,682,600 (up by 28.8k vs 22.7k in Q4 2022) and 5G mobile expand its coverage to 2,100 towns and cities. The operator also added 107,800 premises to their new full fibre (FTTP) network (primarily for nexfibre).
Sadly, the latest quarterly results did not contain any major new developments, such as updates on VMO2’s recently proposed £3bn acquisition of CityFibre (here) or the reports that they plan to sell off all or part of their stake in the UK’s largest mobile tower network, which could fetch around £750m or half its stake (here). But we did learn that they’re on course to migrate Virgin Mobile customers to O2 plans by the end of 2023 (here).
On network build, we should point out that VMO2 has replaced their old “Homes Passed” figure for network coverage with “Homes Serviceable“, which essentially means that this figure will now combine their coverage for both Virgin Media’s fixed line network and those over partner networks where they have a service agreement (e.g. nexfibre).
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Virgin Media largely completed their own broadband focused Project Lightning network expansion at the end of 2022. But since then the vast majority of new XGS-PON powered Fibre-to-the-Premises (FTTP) broadband build has come under nexfibre, which is a new joint venture company setup by Telefónica, Liberty Global and InfraVia Capital Partners (here).
Just to recap. The aim of nexfibre is to expand full fibre to reach “up to” 7 million additional UK homes – staring with 5 million by 2026 (i.e. those homes not currently served by VMO2). In theory, this could push the combined VMO2 and nexfibre footprint to around 80% of UK premises by 2028 (up to 23 million premises), which is roughly comparable with Openreach’s rival FTTP target (25m by Dec 2026).
However, unlike VMO2’s currently closed network, nexfibre’s infrastructure will be open to wholesale access by other broadband ISPs to harness (Virgin is the first and – currently only – anchor tenant on this new network). The physical nexfibre build technically started in Q4 2022, but most of the new build this quarter is “primarily” for nexfibre (we don’t get a clear split between networks, but VMO2 should only account for a small slice).
Nexfibre Rollout Since 2023
Q1 2023 = 107,800 Premises
Q4 2022 = 24,000 PremisesNOTE: A small portion of the above premises (homes serviceable) figure will include some infill build for VMO2,
In addition, VMO2 said the upgrade of their existing Hybrid Fibre Coax (HFC) network – accounting for c.14.3m premises – to FTTP (XGS-PON) also remains on-track (aka – Project Mustang). We recently covered all of this in more detail and revealed that VMO2 plan to start putting customers live on their upgraded XGS-PON infrastructure by the end of 2023 (here) – they’ve already done almost 1 million VMO2 premises.
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As for Mobile, the operator has now reached 50% outdoor 5G population coverage in more than 2,100 towns and cities, and they claim to be on-track to deliver 5G services to over 50% of the outdoor UK population in 2023.
Quarterly UK Customer (Connection) Figures – Q1 2023
5,682,600 Fixed Broadband – (up from 5,653,800 in Q4 2022)
44,946,900 Mobile inc. Wholesale – (up from 44,650,000)
On the financial front, VMO2 reported total transaction adjusted revenue of £2,602.6m in Q1 2023, which is down from £2,731.8m last quarter.
Lutz Schüler, CEO of Virgin Media O2, said:
“In the first quarter we delivered a solid performance as we laid the groundwork for further progress through the remainder of the year.
As the largest gigabit network in the country our speed leadership continues, with customers taking broadband that is five times faster than the UK average. We continue to invest in the upgrade and expansion of our footprint and we are on-target to cover 80% of the country with full fibre. When coupled with bringing 5G services to more areas and reaching half of the UK this year, we are playing a big role in future-proofing the UK’s digital infrastructure.
Our integration activity and the delivery of run-rate synergies is progressing at pace, with the migration of Virgin Mobile customers to O2 plans. We expect further run-rate synergies throughout the year including Mobile backhaul integration using our own fixed network.
With strong foundations in place and as commercial momentum builds, supported by price increases, we remain on track to meet our 2023 guidance.”
Finally, the average download speed across their fixed broadband base increased by 36% year-on-year to 315 Mbps.
UPDATE 11th May 2023
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VMO2 has confirmed that construction revenues for Nexfibre are expected to be around £550 to £650 per home, which is similar to their Project Lightning build cost under Virgin Media. But we think this should actually be considered an improvement, since Nexfibre will be going into areas not previously reached by VMO2 and that tends to attract a higher cost.
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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Rumours from within the finance world suggest the Virgin Media/Nexfibre acquisition of Cityfibre is going ahead, of course it will have to be approved, that’ll be the next big step for them.
Rumours are speculation until evidence appears to confirm it.
Example
Rumour Putin is hiding in bunkers and sending out look alikes
Rumour Tories have our best interests at heart and we should stick with them cos they will see us right at the end.
If VMO2, or the Nexfibre JV, are in substantive talks to acquire CityFibre, then I’d suggest they’d comment on it in the Liberty Global Q1 results presentations; The fact they haven’t mentioned it suggests serious talks aren’t taking place. There’s a history of stories being released with no real substance, like the speculation around VMO2 taking over TalkTalk, which made no business sense and came to nothing; How anyone believed VMO2 would seriously want to take over TalkTalk is beyond me, and although I can see a stronger business case for a VMO2 CityFibre takeover, I doubt it will happen. £3 Billion to takeover a completely separate network, which will have to be run in parallel with their Docsys network with unspecified customer migration costs. CityFibre have recently layed fibre down my road, with access points on the road in front of the properties, but the gardens are raised above the road and many will balk at having their garden dug up to accomodate a fibre connection, so there’ll be issues/costs there. I can see why it’d suit VMO2 to take out a competitor, and acquire an FTTP network covering much of their own footprint, but at £3 Billion with other costs going forward, I’ll be surprised if it happens.
I also doubt VM are looking seriously at CF.
Unlike openreach, 99% of VMs footprint can do Gigabit and there’s still room left for more. Why would they want to acquire another network which while it would be full fibre, already covers their footprint.
I bet its cheaper for VM to upgrade HFC to PON than it would be to move a HFC street over to an acquired CF network.
You peeps are applying logic to the idea of VM buying Cityfibre, and that’s a mistake. The majority of large scale M&A is misguided and value destroying. There’s reams of academic studies proving this, and a hall of shame that includes many entries even from the world’s largest and best known companies who really should know better. But that never stops a boardroom of fools from leaping at the exciting distraction of some big ticket M&A. M&A is far more attractive than the dull mundanity of making your business run better, or the hard work of ekeing out quality, reliability or customer service improvement. Why suffer that drudgery, when you can have expense account lunches with investment bankers, be feted by top law firms and consultants of every hue, and be treated like royalty in the swanky offices of those advisors, whilst eyeing up the assistants and office juniors? Admittedly it may lead to a dreadful outcome for investors, but who cares about them? Directors certainly don’t. And this is indifferent to the sector. HP blew billions on Autonomy, BMW bought Rover, Sainsbury’s bought Argos, Toshiba was ruined by buying Westinghouse, Mannesmann bought Vodafone etc etc. Search for world’s worst performing mergers and have a laugh, knowing that no guilty party suffered for their foolhardiness, because it’s only ever customers, employees and shareholders that take the hit.
So anybody looking for common sense to help predict VM’s choices is sadly mistaken. That doesn’t mean they will buy CF or indeed anybody, it just means you can’t tell.
Very true Andrew.
On the specific topic of the results (rather than the ever distracting debates about M&A), the latest results are the usual VM fodder – trivial increases in customer numbers and revenue touted as a success, whilst glossing over the fact that to get 29k new customers they’ve added another 530k serviceable premises. Debt is up, ARPU is materially down, a long term trend, and worse when you factor in inflation. Adjusted EBITDA climbed a miserable 2% to £929m, and with debt of £20.8bn that EBITDA is completely wiped out leaving (as usual) no return on equity.
You have to wonder how the whole rickety edifice stays up.
The alternative to VM overbuilding their DOCSIS with FTTP is the slow death of their fixed broadband network as in becomes increasingly uncompetitive.
Are we still going on about VM buying CF after one article was posted by Telegraph? Still to see some more basis on this.
Have VM completed their acquisition of TalkTalk and Trooli yet?!