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Broadband ISPs React to Virgin Media O2 UK Going Wholesale

Saturday, Feb 24th, 2024 (12:01 am) - Score 20,240
virgin media engineer poking cabinet

The first retail broadband ISPs have begun to give their reactions to Virgin Media’s recent change of strategy (here), which will see them open up their existing fixed line network to wholesale via a new business (NetCo). Most internet providers have welcomed the move, but some are sceptical of NetCo’s ability to match Openreach (BT).

At present Virgin Media’s existing gigabit-capable network covers a shade over 16 million UK premises via a mix of different fixed line technologies, albeit primarily Hybrid Fibre Coax (HFC), followed by Fibre-to-the-Premises (FTTP) lines using Radio Frequency over Glass (RFoG) and some FTTP via XGS-PON. The operator is also working to upgrade their entire HFC network to FTTP (XGS-PON) by 2028.

However, the current network is closed, which means that only Virgin Media can sell broadband packages over it. Suffice to say that the recent decision to open that network up to wholesale is a significant, albeit long-expected (they’ve been talking about it in the open for years), development and one that could potentially give Openreach a major new competitor to worry about.

Put into a wider context. Once all of the planned builds and upgrades by the separate nexfibre (they’re separate but share the same parentage) and NetCo networks have completed, the combined FTTP coverage could reach up to 23 million premises (c.75% of the UK), which is only a little shy of the 25 million that Openreach expects to reach by December 2026.

What does the industry think

ISPreview has spent the last week canvassing opinion on the development, including from various dedicated retail ISPs and a few rival network operators – both on and off the record. Overall, the internet providers we spoke with were broadly positive about the development and were planning to seek more information, although for most it’s still a game of “wait and see“, until the new NetCo goes live.

In the meantime, some of the respondents held a question mark over NetCo’s ability to compete with the likes of CityFibre and Openreach, not least because the latter is obligated by regulation to treat all ISPs fairly, keep to specific performance standards and not to preference its parent (BT).

By comparison, NetCo is under no such obligation and will also need to be careful when it comes to signing exclusive agreements, so as not to create too much division on product and price between partners. Pricing is also, more broadly, another area of uncertainly for some ISPs, particularly since Virgin Media tends to lean more toward the premium end, which could struggle if that translates to NetCo’s wholesale products (AltNets are particularly aggressive on price).

Some providers also noted that Virgin Media hasn’t run a wholesale network before, at least not on the consumer side (different market from their business / Ethernet wholesale solutions), and questioned whether NetCo can be truly competitive without the risk of cannibalising Virgin Media’s own base.

Finally, the odd provider also raised a few technical questions over how NetCo will manage the division, setup and availability of products on a network that is still split between technologies with different capabilities – one that is also in the middle of a long transition (HFC to FTTP). But this may not be a million miles from how Openreach handles FTTC vs FTTP etc.

The key takeaway is that ISPs currently have a lot of questions and not a lot of answers, but we did still detect a clear appetite to engage with the operator, which suggests that a strong initial interest does exist. Sadly, not all of those we engaged with wanted to comment on the record (e.g. TalkTalk, perhaps for obvious reasons), while a few others (e.g. Sky Broadband and BT) didn’t respond at all.

Alan Stephenson-Brown, CEO at Evolve Business Group, said:

“At Evolve we welcome the news that Virgin Media O2 will open its fibre broadband network to other internet providers. As a new nationwide provider, it will challenge the dominance of BT-owned Openreach, which currently connects 99% of all homes and businesses across the country. That can only be a good thing for UK businesses.

Currently, all broadband providers rely on the Openreach network to connect customers. As such, these suppliers are limited to the top speeds provided by Openreach cables in that area.

By opening its network to other brands for the first time, Virgin Media is paving the way for more true alternatives for broadband providers who want to unlock faster speeds in parts of the UK that have yet to be upgraded by Openreach.

Furthermore, going forward, any Openreach rival stands to benefit from the second wave of Project Gigabit contracts, which are expected from 2025 to 2030, in a bid to expand fast broadband into tough-to-reach parts of the country where no Gigabit-capable internet options exist. In turn, businesses will be better able to fulfil the connectivity targets that we know are a priority for them.”

In fairness, Evolve seems to be ignoring about the sizeable group of alternative networks that exist (often in the same areas as Openreach), many of which are open to wholesale and some of which even have significant national coverage (e.g. CityFibre).

David Barber, Strategy Director at Zen Internet, said:

“While VMO2 has the advantage of scale and brand, there are other factors we would need to consider when assessing any potential relationship. These are similar to when we look at any altnet and primarily encompass footprint, service, and commercials, with true ambition and commitment to wholesale a crucial consideration.”

A spokesperson for Vodafone UK said:

Vodafone is keen to see a competitive and sustainable wholesale fibre market develop that will help to deliver high quality, affordable fibre for customers. We also encourage the setting of quality thresholds that all fibre networks need to be above.”

A spokesperson for iDNET said:

“We’re encouraged by this announcement as we’re keen to partner with as many Alt-nets as possible. Having a choice of carriers to offer to our customers brings benefits to everyone. Virgin will need to be competitively priced compared to BT Wholesale and have robust provisioning and fault handling processes, preferably available via an API that we can integrate with.”

An Openreach spokesperson said:

“We welcome competition as it’s great for customers and it’s what Openreach was established to enable. We’re proud to be investing billions of pounds to upgrade the UK’s digital infrastructure and, whilst we’re building further and faster than anyone else, we’re also committed to supporting others who use our ducts and poles to build their own networks. We’re confident that the unrivalled quality and breadth of our network, as well as the skill of our teams and the strength of our relationships with customers, will see us continue to be successful and deliver a bright full fibre future for the UK.”

A spokesperson for Andrews & Arnold (AAISP) said:

“[We] see Virgin Media as possibly becoming something akin to the biggest Alt-Net out there. Their footprint size is extremely appealing to A&A, so we are hopeful that technically and commercially it is viable.

Also, there are a huge number of addresses which are served by both Virgin Media and Openreach infrastructure, so we would be able to offer true carrier-resilient fast connectivity to customers in those addresses, if we do agree a deal with NetCo for wholesale services.”

A couple of ISPs said they were also unclear on when NetCo would actually launch, although a related slide for the plan specifically pointed to this occurring during the H1 2025 period. Suffice to say, it’ll be at least a year before they actually press the button and by then they’ll have managed to upgrade HFC areas covering several million lines to 10Gbps capable FTTP (XGS-PON).

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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
19 Responses
  1. Avatar photo Big Dave says:

    The obvious answer to the neutrality issue is for Ofcom to enforce the same neutrality rules across all wholesale networks. The rules were brought in when Openreach were in a near total dominance and clearly they are not going to be as dominant in the future. We may even get to the position where BT Retail provisions over an altnet if there is no Openreach network in a particular area, they are already known to be talking to Starlink.

    1. Avatar photo Andrew G says:

      I’d agree. There is the thorny issue of who will pay for the Universal Service Obligations that BT have, who picks up the tab for high cost to serve areas (such as remote communities), who would be obligated to sort out Exchange Only Lines.

      Unfortunately the regulator here is Ofcom, so I don’t expect action in the next ten years, and even when there is some movement, it’ll be half-baked.

    2. Mark-Jackson Mark Jackson says:

      @Big Dave. The catch you may be overlooking here is that the gauge for an operator being deemed to hold Significant Market Power (SMP) reduces as competition grows, which usually leads to Ofcom softening and not hardening its regulatory stance. So the fact that Openreach may not be as dominant seems unlikely to result in the regulator imposing restrictions on the new wholesale player, particularly as the launch is a positive move for the market.

      @Andrew G. BT and KCOM are currently the regulated USO providers, which is handled separately from Openreach. The USO is about to be placed under review, so any changes on that front will shortly open up for wider debate, but it’s somewhat of a separate issue. In addition, nexfibre/VMO2 don’t generally serve remote communities and don’t hold SMP.

    3. Avatar photo Ex Telecom Engineer says:

      Mark I don’t understand why VMO2 isn’t also placed under some sort of regulatory oversight. They now apparently pass 16.3 Million premises, more than half the UK total, usually in the more densely populated easier to reach (sweet spot) areas; On top of that Nexfibre is VMO2/NetCo in all but name, with Telefonica and Liberty as major shareholders of both companies.
      Openreach’s operating model wont change now, since even if the the regulatory shackles were loosened by OFCOM, the CMA would likely punish them if they gave any preference to their parent BT over other CP’s. I suspect the same will apply to VMO2 and they’ll be forced to run NetCo along exactly the same lines as Openreach, both for competitive and regulatory reasons.
      Will VMO2 be able to offer a reasonable wholesale service over DOCSIS/HFC/RFOG? And if they are looking at retiring the legacy cable technology, surely they wouldn’t offer wholesale over something comparable to FTTC? Whereas BT is, and will continue, forcing CP’s to move FTTC customers to FTTP as it becomes available, does it make sense for VMO2 to start offering wholesale service over their legacy network? Even though VMO2 have stated they’ll cover all their existing footprint with FTTP by 2028, aren’t they also saying they wont move existing customers until requested? And wouldn’t running legacy alongside FTTP hammer their margins until DOCSIS is completely retired?

    4. Avatar photo Big Dave says:

      If I was a medium size ISP like ZEN for instance I would want some guarantees that I wouldn’t shafted at a later date as VMO2 are a competitor retail ISP. At least Ofcom provides that certainty with Openreach (at least for now).

    5. Avatar photo Andrew G says:

      “And wouldn’t running legacy alongside FTTP hammer their margins until DOCSIS is completely retired?”

      It certainly won’t help. The problem VMO2 have is that the O2 side is profitable, the old VM side isn’t, and parent company Liberty Global has been unprofitable for the past few years, and the shares have lost 30% of their value (against a market rise of 26%). The root of all this is that the cable internet business is capital intensive – and especially so because VM capitalise a lot of their marketing spend. Despite spending circa £3bn on Project Lightning to expand the UK network customer numbers stagnated, and average revenue per user remained the same (a real killer during these inflationary times). As a result their return on capital is negligible on cable operations. That’s well hidden in their public reporting, but there’s sufficient there for those who know their way around a set of accounts to find the evidence. Having failed with Project Lightning which added more debt and additional operating costs but didn’t build the customer base, they’ve doubled down on investing with Nexfibre. Maybe that will be different, but with growing Openreach FTTP coverage it’s possible that attrition within the existing VM service areas will at best be balanced by Nexfibre additions, in which case still more capital, no growth. Certainly the proposals to go wholesale are a big change, but with the mixed bag of assets and coverage, a tarnished brand, and debts the size of a small country* it all seems a lot of change for a company that’s not good at change. When you look at it like that, going wholesale looks like a reluctant last chance move. I’m now on OR FTTP, but for years was a VM HFC customer – knowing what their service is like I’d not see any reason to move back onto their network, even if my contract was a wholesale customer ISP with a better reputation. And finally, there’s cost – can VMO2 be price competitive with OR, and what happens to its own ISP+content business if other suppliers undercut it?

      * The total debt of VMO2 and Nexfibre is about £20-23bn depending on Nexfibre’s debt drawdown and that is about the same as the government debt of say Luxembourg, Uganda, or Uzbekistan.

    6. Avatar photo greggles says:

      This perhaps goes some way to explain why VM’s services can cost so much and why they are harder to get good deals from in the current era, it seems VM customers are likely paying as much to maintain that debt and the FTTP rollout as they are paying for the running costs of their HFC service.

  2. Avatar photo Tom says:

    “The operator is also working to upgrade their entire HFC network to FTTP (XGS-PON) by 2028.” Have they actually upgraded any of it yet?

    1. Avatar photo Bob says:

      Comparing VM’s cable network to FTTC is not really correct. They deliver the Broadband over a Fibre/ Coax network which gives a lot better sped than FTTC but not as good as full fibre

    2. Avatar photo greggles says:

      From reports I have seen I expect very little of it, any news on their FTTP rollout seems to be new areas or areas in between existing HFC areas, I dont think they can cover their existing cable footprint in just 2027 and 2028, the up to 2026 seems to be on new areas only.

  3. Avatar photo Just a thought says:

    If OR now has serious wide scale competition, will they be allowed to reduce their prices? Understand that there are some OfCom regulations as to what deals and discounts they can offer ISP / CPs. to keep competition fair. Whilst it is “fair” that small AltNets can undercut in order they are not just instantly quashed by an incumbent, there must be a stage when very large AltNets NetCo are considered in the overall price/deal capping equations

  4. Avatar photo Unhappy man says:

    Of all the responses, all but one had some sort of meaning, then it comes to open reach, who just copy and pasted a response about what they are doing. They couldn’t even be bothered to give you the respect you deserve and acknowledge your point. Their communication team need to learn a bit from simple contact centre workers and actively listen to what is asked of them and to not give an unrelated answer.

    P.s. Giff Gaff are rumoured to be the first VM wholesale customer. As they had hired an contact centre facilitator to train advisors in broadband.

    1. Avatar photo Alex says:

      They literally acknowledge the extra competition and say they’re up for it. What more do you want them to say? They’re hardly going to say they’re worried, and they’re even less likely to get into a public slanging match about why they think VMO2 will be a terrible wholesaler.

    2. Avatar photo AndyK says:

      Given that GiffGaff is owned by the same parent company as VM02 and pretty much entirely controlled by O2, and they still haven’t even got the most basic of mobile phone features properly sorted yet, I really don’t see the problem. They don’t even need VM02 to go wholesale to launch GiffGaff branded broadband on the platform.

      I think the bigger reason why Openreach don’t seem bothered is because the likelihood of VM02 being competitive on all of price, quality and service is pretty low…

  5. Avatar photo Martin Gardner says:

    We have agreement to sell over VM already via the business side to residential since last year, the biggest hurdle I can see from experience is that they are far from being set up to handle this kind of structure and found it very frustrating how far behind they are against other providers, we decided to hold back from selling any. No API, split area master accounts, billing potential sent to customers bit, not us. It will take time to sort I’m sure but wee would be interested in XGS-PON via NextFibre side and will just have to watch and wait what happens with VM.

    1. Avatar photo Bob says:

      VM was not really geared up for wholesale hence the setting up of a separate company to handle wholesale

  6. Avatar photo Name says:

    I would love to see this. I only hope that CityFibre can exist too in a world with Openreach & ‘Virgin wholesale’ + NexFibre

  7. Avatar photo Big Dave says:

    I took a walk in Banbury yesterday and found that Virgin are now installing along one street (judgingby the monikerin the path boxes). We now have Openreach, Swish, F&W (Hey! Broadband) and now Virgin installing. It’s beyond ridiculous.

  8. Avatar photo Colonel Pickering says:

    This is interesting because there was a time I think about 20 years ago the former company NTL’s services was available via AOL as rebadged offering. Not true wholesale in the sense of the word, more reseller if you will….though billed and ordered through AOL’s systems at the time.

    So its a return to that market in a way albeit creating a separate entity similar to Openreach.

    I wonder although VM will be an anchor ISP….once Nexfibre has completed the rollout and the upgrade of the HFC to XGS-PON is complete….will they spin off the combined network into a completely separate operation?

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