Virgin Media and O2 (VMO2) have today published their combined results for Q4 2021, which finally confirmed their long-awaited plan to extend the operator’s Fibre-to-the-Premises (FTTP) broadband network to cover around 23 million UK premises by 2027 (7 million more than today) via a new Joint Venture.
The announcement doesn’t tell us much, but it does confirm a lot of what we’ve been expecting for several years now. VMO2 confirm that they have initiated discussions with a number of potential financial partners regarding an opportunity to participate in the network build joint venture (major ISPs like Sky Broadband and TalkTalk, among others, have long been linked with this).
The focus of the new entity (separate company to manage the network) will be on building a full fibre network of up to 7 million premises in new greenfield areas by the end of 2027 and Virgin Media will commit to being an anchor tenant on this. All of this will of course complement the existing plan to upgrade their existing Hybrid Fibre Coax (HFC) network – some 14.3 million premises – to XGS-PON capable FTTP by the end of 2028 (here).
The network will also be available to other ISPs on a wholesale basis, which will create a major competitor to Openreach (BT). “As this extends the company’s total gigabit reach to ~23m premises once completed, it provides [VMO2] with a clear incremental growth opportunity by offering services to a wider pool of customers and higher cross and upsell due to the increased overlap of fixed and mobile services,” said the results.
The Quarterly Results
Aside from the aforementioned announcement, we note that Virgin Media also saw their fixed broadband base reach 5,596,800 customers (up by 60.4K in Q4 vs 42.3K in Q3) and their full fibre broadband (FTTP) network added another 93,000 UK premises to its coverage (up from the 67K added in Q3).
Quarterly UK Customer (Connection) Figures – Q4 2021
5,596,800 Fixed Broadband – (up from 5,536,400 in Q3)
42,243,400 Mobile inc. Wholesale – (up from 41,638,200)
Meanwhile, the Project Lighting network expansion has so far reached an additional 2.7 million premises since it began some years ago (c.1.5 million via FTTP and the rest as Hybrid Fibre Coax), and their quarterly pace of build appears to have recovered from last year’s slump.
Project Lightning Rollout Since 2017
Q4 2021 = 93,000 Premises
Q3 2021 = 67,000 Premises
Q2 2021 = 89,000 Premises
Q1 2021 = 80,000 Premises (impacted by COVID-19 lockdown)
Q4 2020 = 115,000 Premises (some impact from COVID-19)
Q3 2020 = 125,000 Premises
Q2 2020 = 93,000 Premises (impacted by COVID-19 lockdown)
Q1 2020 = 93,000 Premises (some impact from COVID-19)
Q4 2019 = 154,000 Premises
Q3 2019 = 119,000 Premises
Q2 2019 = 130,000 Premises
Q1 2019 = 102,000 Premises
Q4 2018 = 144,000 Premises
Q3 2018 = 109,000 Premises
Q2 2018 = 118,000 Premises
Q1 2018 = 111,000 Premises (likely impacted by heavy snow)
Q4 2017 = 159,000 Premises
Q3 2017 = 147,000 Premises
Q2 2017 = 127,000 Premises
Q1 2017 = 102,000 PremisesNOTE: Virgin’s fixed network covers a total of 15,649,900 UK homes passed.
Interestingly, VMO2 said they expect to build FTTP to more than 500,000 premises in 2022, which would reflect a gradually increasing build rate of approximately 125,000 per quarter. But to reach 7 million extra premises by 2027 they’d need to be building at a rate of 1.4 million per year or 350,000 premises per quarter. In other words, we expect the build to ramp up much higher than this.
The latest results also included a few additional bits of interesting information. The average broadband speed on Virgin Media’s network is now 214Mbps, and 45% of their broadband customers take a mobile plan. The operator also saw a 93% reduction in Virgin Media complaints in 2021, with improvements in customer satisfaction (NPS). Overall, VMO2 invested £2bn of capital in network infrastructure and customer experience in 2021.
On the financial front, VMO2 reported total transaction adjusted revenue of £2,720.2m in Q4, which is down from £2,739.3m at the same time last year.
Lutz Schüler, CEO of Virgin Media O2, said:
“In a historic year for our business, which saw the completion of the UK’s largest ever telecoms merger, we stayed focused and finished 2021 on a high.
We saw sustained subscriber growth across fixed and mobile as the demand for fast, reliable connectivity remains, and delivered an increase in profitability while investing more than £2bn in our network, services and future growth drivers.
As part of our mission to upgrade the UK, we expanded our 5G coverage, completed our gigabit rollout as promised, and we now plan to extend our footprint to ~23 million premises through a new fibre venture being set up by our shareholders.
We’ve started this year by being the only big four mobile network to not reintroduce EU roaming charges. This challenger spirit runs deep across the organisation, and we have every intention of building on this energy and maintaining the momentum we’ve built up.”
None of today’s news will come as too much of a surprise to ISPreview.co.uk’s readers because we’ve been reporting on exactly this ambition since 2019 (here). Virgin Media has also made no secret, both before and after the O2 merger, of its desire to turn itself into a wholesale operator like Openreach.
However, today’s announcement doesn’t tell us precisely when the new wholesale solution will be launched or confirm which ISPs are going to support it (other than Virgin itself). This suggests to us that the agreements have probably been reached (i.e. enough to make them confident of confirming the plan), but that the final details haven’t yet been formally signed off by all the players.
One of the biggest question marks over this is the issue of exclusivity. For example, some ISPs might well seek some degree of exclusivity of access, which is understandable. But that does make it harder to secure support from other ISPs (CityFibre had a similar issue, until recently) and that in turn can impact issues of take-up and promotion etc. No doubt more details will follow later in the year.
Nevertheless, VMO2’s move today is significant and one that could have a big impact on the current market, where Openreach has traditionally been the most dominant player. In one fell swoop, VMO2 would create a major rival at wholesale, which could change both the competitive and possibly even regulatory dynamics. But much will depend upon how competitive, flexible and accessible their products are for ISPs to take.
UPDATE 10am
We’ve been talking with VMO2 a bit in order to better understand the structure they’re adopting for wholesale and how they’ll handle the FTTP vs HFC split on their network. Firstly, just to confirm, the new entity being discussed by their shareholders would be independent of VMO2 (albeit with VMO2 as an anchor tenant).
However, although the new JV will be a separate entity, the commercial benefits of having around 23 million premises across the country will still be captured. According to VMO2, these potential wholesale customers would be offered access to the new separate fibre JV as construction of the FTTP network takes place. In addition, VMO2 itself has the “option” to offer wholesale services to its existing 15.6m premises.
UPDATE 11:53am
Just to clarify, the above means that the 15.6 million (HFC and RFOG FTTP) built so far will stay with VMO2, which we’re told also includes the Project Lightning build for 2022 – there are no assumptions or plans relating to spinning this existing network into the new entity. The focus of the new fibre entity is thus on accelerating new FTTP build with a possible financial investor, which is being led by their shareholders.
Essentially, they are saying that the new fibre JV (entity) for 7 million premises will offer wholesale, but there’s also the option for them to wholesale on our current footprint (HFC or FTTP). We strongly expect this to happen, but it may not occur at exactly the same time.
