Virgin Media reportedly looking at large-scale fibre expansion through JV

Liberty Global-owned Virgin media is planning a large-scale expansion of its fibre network in the through the creation of a separate company backed by infrastructure funds, according to the Financial Times.

According to the paper, citing unnamed sources, Liberty has appointed LionTree to create a JV to build fibre networks outside of densely populated urban areas using BT’s ducts and poles. Virgin Media itself would be the key service provider, but the network would be open to other providers. The JV would look to pass some two million homes in less densely populated areas, drawing on public subsidies where these are available.

The move would be the latest in a series of fibre initiatives involving infrastructure funds. Other players in the field include City Fibre, which is building out a wholesale network in key UK cities.

Commenting on the report, analysts at investment bank Jefferies said that the report represented a “credible scenario” given that Virgin Media’s existing Project Lightning fibre build-out was “delivering good returns” and Liberty is in line to receive proceeds from its sale of assets to Vodafone that could help fund the venture.

According to Jefferies, Project Lighting, though proceeding slower than originally envisaged, is delivering “an impressively accretive return” that will “whet management’s appetite” for more.

Jefferies said that risks associated with the venture, where it estimates capex to amount to £1.15 billion, of which Liberty would likely be responsible for half, include “execution risk and competitive reaction”. It says Liberty has “a mixed track record” on achieving its targets in this area, while BT’s Openreach “may not be willing to cede infrastructure share and go head-to-head, and other ISPs are tied into volume commitments to Openreach that could limit their interest in accessing this network”.

Regarding BT, Jefferies says that ‘any FTTP overbuild threatens Openreach’s dominant access share” of around 80%, while it provide a new competitor to BT’s retail arm in around 7% of UK homes.

Jefferies also commented that other broadband providers including Sky, TalkTalk and Vodafone may be unlikely to support an initiative that could boost Virgin Media’s retail presence, and most of these companies have signed up to volume commitments with Openreach.