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.

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.

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.