Virgin Media O2 Eye Vodafone UK Wholesale Broadband Deal and Lament Price Hikes
Telecoms giant VMO2 (Virgin Media and O2) is reportedly engaged in talks with VodafoneThree (Vodafone and Three UK) over a possible wholesale broadband deal, which would enable Vodafone UK to sell packages to consumers via Virgin/nexfibre’s growing full fibre (FTTP) network. Separately, VMO2’s CEO has admitted that O2’s move to hike prices for existing mobile users “wasn’t the best decision“.
At present Virgin Media (O2), which is controlled by Telefónica UK and Liberty Global as part of a 50:50 Joint Venture (JV), operate a gigabit-capable fixed line broadband network that covers over 16 million UK premises (mostly in urban areas). The network reflects a mix of hybrid fibre coax (HFC) and full fibre (FTTP) connections, although they’re aiming to upgrade nearly all of that to full fibre over the next few years. But wholesale access to this remains somewhat of a work-in-progress (here).
In addition, Telefónica UK, Liberty Global and InfraVia Capital also jointly own the semi-separate nexfibre business, which has rolled out an open access (wholesale) full fibre network to 2.6 million premises in areas NOT currently served by Virgin Media’s own network. But at the time of writing, the only two retail ISPs selling services via nexfibre (Virgin Media and giffgaff) all share some of the same group parentage.
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As if to make all of these underlying network arrangements even more complex, VMO2 and nexfibre’s parents have recently agreed to acquire Netomnia’s network of 3 million UK full fibre premises and merge that into nexfibre (here). But this deal is still somewhat subject to review by the Competition and Markets Authority (CMA).
At the same time VMO2/nexfibre have long been trying to develop a better and more attractive wholesale model, which could open their full fibre network (not HFC) up to being accessed by independent retail ISPs (i.e. providers that aren’t merely part of their own group of companies). The ability to achieve this would make them more competitive with Openreach (BT) and help to show the CMA that their Netomnia deal may have pro-competition upsides (many view it more as a tool to hamper rival CityFibre’s ability to become a true national competitor at scale).
The problem is that VMO2/nexfibre have so far struggled to reach any serious wholesale agreements with independent ISPs of any scale, which is despite plenty of past talks taking place with Sky Broadband and others. According to The Times (paywall), VMO2 are allegedly now engaged in talks with VodafoneThree over the possibility of signing such a wholesale agreement.
A spokesperson for VodafoneThree said:
“We’re always exploring opportunities to bring even greater connectivity to our customers.”
Naturally, potential ISP partners will be looking to be treated fairly (wholesale agreements), which is always a tricky thing to balance vs the desire by some for exclusivity agreements and the issue of retail protectionism (i.e. the pursuit of a wholesale model that doesn’t result in mass cannibalisation of customers from their own group-linked retail providers – Virgin Media and giffgaff). Such is the difficulty of marrying vertical integration with wholesale.
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On top of that they’d need to be competitive with the likes of CityFibre and the regulated Openreach, while also making the platform as easy to harness as possible, which is typically easy to say but very hard to deliver. But the deal with Netomnia does clearly give them an incentive to get a deal over the line this time with VodafoneThree. However, time is short, and it remains unclear whether such an arrangement can be reached.
Finally, the CEO of VMO2, Lutz Schüler, has separately acknowledged that O2’s move last year to increase bills for Mobile customers in the middle of their contracts “wasn’t the best decision“, which readers may recall caused somewhat of a backlash (here and here) and resulted in quite a few customers leaving for pastures new. Schüler told The Telegraph (paywall) that he had “not expected that reaction”.
Lutz Schüler, CEO of Virgin Media O2, said:
“It is all about the customer, and that was not customer-friendly, and the market has reacted to it. We have learned, and therefore we were also happy to commit to government at the round table that we won’t do it again.”
Apologising and committing not to do it again is all well and good, albeit admittedly somewhat less effective now that the policy has already been implemented.
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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“Schüler told The Telegraph (paywall) that he had “not expected that reaction”.”
Is there a mindset amongst the business elite that customers don’t mind when you violate your contract with them? This is why it’s so important to have competition and avoid monopoly operators at all costs even at the infrastructure level.
Big companies seem to expect the consumer to gobble up any slop that’s thrown at them. Good job when it bites them in the backside.
RIP CITYFIBRE
Yep…
It’s not good news seeing as CF are largely overbuilt with VMO2/Nexfibre although much of that may well be Virgin’s HFC copper network which isn’t being opened up.
Not at all.
Vodafone are in a long term contract with CF and have minimum commits.
“Naturally, potential ISP partners will be looking to be treated fairly (wholesale agreements), which is always a tricky thing to balance vs the desire by some for exclusivity agreements and the issue of retail protectionism (i.e. the pursuit of a wholesale model that doesn’t result in mass cannibalisation of customers from their own group-linked retail providers – Virgin Media and giffgaff). Such is the difficulty of marrying vertical integration with wholesale”. BT Group has managed to do it although it has been dragged there kicking & screaming by Ofcom. This suggests to me that the best approach by VMO2 is to let Nexfibre take over the whole fibre roll out and for it to become the wholesale operator & VMO2 to become a retail ISP in the same way that BT consumes Openreach’s network.
VMO2 need to partner with a company that understands customer service. I think they can deliver technically, but their customer-facing team is incompetent. I get the feeling that VMO2 would prefer to be like Openreach – just deliving the infrastructure and not having to deal directly with end customers.
Those prices increases were the best thing they could do. Also the switch up change also was the best thing they could do .
It allowed me to exit my affected contracts stage left and save some money on the airtime etc
Ill never forget the £1000 bill I was left with after them cancelling everything rather than just the airtime.
It’s bad news for CityFibre. They need to wrap up 2/3 deals quickly or the ground beneath them will quickly disappear.
Why?
They already have all the major retail ISPs (except BT and VM) using their network
Anon – CF got big by undercutting Openreach (whose ability to respond is limited due to Ofcom tying their hands behind their back). Now VMO2 can attempt to turn the tables.
The BT Group and VMO2 both have major retail businesses to cushion any wholesale loss but CF is rather more exposed.
At least Openreach still has the USP of a large network footprint that no one else dares to overbuild. The CF/VMO2 overlap is far more considerable.
Genuinely suprised that VM02 aren’t exploring DOCSIS 4.0 over the Nexfibre project, though I suppose that the XGS-PON standard being adopted across all providers is better than fragmentation across different techs.
They will surely be subject to some Ofcom regulations soon regarding network access, so maybe they are trying to get ahead of it. I wonder if their HFC network would be subject to this?
Nexfibre is all new cabling and full fibre is cheaper to build than HFC, cheaper to run, is more reliable and has higher capacity. DoCSIS 4.0 is an HFC-only technology. Closest anyone is getting to that would be DoCSIS Provisioning over EPON / DPoE allowing them to keep existing provisioning systems while taking advantage of full fibre.
If you’re asking why they’re not deploying DoCSIS 4.0 in the UK generally the costs of 4.0 and the costs of overbuilding with full fibre are close enough that they decided to go to full fibre.
On wholesale over HFC believe they plan on wholesaling their full fibre networks, both Nexfibre and the VMO2 / FibreUp full fibre, only. They intend to have FTTP available everywhere they have HFC network within 3 years so building a wholesale product for hybrid now seems wasteful.
Nexfibre have been trying to get wholesale going for a while but due to a fair amount of the network being built around the edges of VMO2 cable and no national network to collect the homes together and deliver over a single NNI it wasn’t an attractive product.
Interesting, thanks for this.
I would have thought that upgrading existing HFC to 4.0 would have made more finanical sense than replacing with FTTP, but I suppose the cost of supporting 2 systems, power requirements and maybe even replacing aging coaxial cabling would make this not viable?
3 years seems very ambitous to replace all the coax with FTTP. I would have thought that they’d explore improving this existing infra and put resources into building XGS in new areas. Clearly the maths is a little more nuanced than this!
To provide 4.0 they’d have had to replace nearly every amplifier and optical node in the network and upgrade the power supplies to handle the new equipment. What they don’t replace needs modules changing out.
They’d need new fibre to existing nodes in some areas as what’s there is maxed out and couldn’t be used with the higher spectrum. It’s being used with WDM as there’s not enough fibre for each node to have its own pair.
They’d have had to push fibre closer to homes and upgrade all the passive equipment within the homes to deliver 4.0 service as they need frequencies the splitters, isolators and attenuators didn’t cover.
Most of the passives in the cabinets aren’t rated for it either so have to replace the tap banks.
Have to have the coax stop at the cable gateway within the home to use higher upstream spectrum: going to 204 MHz and upwards on the return is going to upset equipment whose forward/downstream RF path starts about a hundred MHz below that.
About the only thing they actually keep with a 4.0 upgrade is the coax and fibre and they have to overbuild some of the coax with fibre.
When they originally decided on fibre overbuild it was well over £60 per premises passed for 4.0. Wouldn’t be surprised if it’s even more now. They’ve been getting fibre close-ish for about £90 without disturbing the coax.
Just as a note presented two scenarios for in the home and explained badly. In one the coax goes to a gateway and no further, in the other a filter has to be installed to block the upstream frequencies the 4.0 kit wants to use from hitting the downstream receiver of the older kit.
On some of the older kit downstream starts at 108 MHz and even on DoCSIS 3.1 high split upstream goes up to 204 MHz.
Given similar talks have fallen through in the past (Sky, Zen), I maintain that Virgin have no interest in opening up their networks. They have nothing to gain by doing so.
The wholesale products, network coverage and network density weren’t where they needed to be.
Zen were never going to use them in their previous form, they wanted their subscribers aggregated and a couple of NNIs.
Sky there weren’t the numbers to merit the investment, the APIs weren’t there, the coverage wasn’t there.
A product that’ll appeal to Zen and others is being built now. The Netomnia acquisition is a huge enabler of wholesale. VMO2 changing strategy back to where they were before the Telefonica review fills in the rest of the gaps.
What they have to gain is higher network utilisation. Nexfibre have no retail customers so don’t care who gets the business, VMO2 are losing retail customers anyway leaving their network less utilised. Getting customers connected to their new FTTP network is essential to making a profit from it. Wholesale revenue’s lower but so are costs, significantly so. They won’t be cannibalising their own retail base given their cable/FTTP networks will be almost 100% overbuilt by others so that same retail competition is retail competition regardless, they’ll be drawing in wholesale custom from those other networks.
@PP
“Zen were never going to use them in their previous form, they wanted their subscribers aggregated and a couple of NNIs.”
Zen’s strategy is to take local connections in the Exchanges like they have done with Openreach and Cityfibre
How much does Lutz get paid to not realise that whacking up prices mid contract would lead to loads of customers leaving?
They’ve committed to Government that they won’t do it again but they didn’t have much choice did they?
Still at least them hiking prices meant I could finally justify switching the four phone packages I had on My Rates and Mates Rates.