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Telefónica and Liberty Global, the joint owners of Virgin Media O2, are set to lead a roughly £2bn acquisition of the UK’s fourth-largest broadband network, in a deal that will narrow the gap with BT’s Openreach, the market leader.
VMO2’s owners are joining forces with private equity firm InfraVia Capital to buy Netomnia through their fibre joint venture Nexfibre, according to two people familiar with the matter. InfraVia jointly owns Nexfibre, which covers 2.4mn UK homes, with Telefónica and Liberty Global.
The deal will add Netomnia’s fibre network, which covers 3mn homes, to that of Nexfibre, and a part of VMO2’s own network. The combined network will cover roughly 8mn homes and give VMO2 access to around 20mn premises in total.
By comparison, Openreach covers more than 30mn homes, 21mn of which have full fibre.
The proposed combination marks the first major step in a long-expected consolidation of the UK’s heavily indebted “altnet” providers, which have been winning customers from incumbents Openreach and VMO2. The deal could be announced as soon as this week, according to the people.
Goldman Sachs-backed CityFibre, the UK’s largest altnet with coverage of 4.5mn homes, had previously claimed to be the player best able to consolidate the UK broadband market and challenge Openreach.
The company expressed interest in acquiring Netomnia but was now unlikely to match Nexfibre’s bid, according to one of the people.
Netomnia, which was founded in 2019, is owned by investors Advencap, DigitalBridge and Soho Square Capital. The roughly 400,000 customers on its retail brands, Brsk and YouFibre, will be integrated into VMO2’s operations as part of the deal, the other person added.
Deutsche Bank analyst Robert Grindle said the deal would provide “scale for Nexfibre by more than doubling its [network] footprint”, while enabling VMO2 “to sell on a much larger Nexfibre network, as well as on its own increasingly fibre footprint”.
While Netomnia is in relatively strong financial health, many of the UK’s dozens of altnets are struggling under heavy debt burdens and lower than expected customer uptake.
The new owner of London-based provider G.Network moved to appoint administrators to the business this month, while rural player Gigaclear is set to be taken over by its creditors. CityFibre is axing almost a third of its staff in a cost-cutting drive.
The acquisition of Netomnia may face scrutiny from competition authorities due to the number of homes it serves which are already covered by Virgin Media O2’s network.
James Robinson, senior analyst at Assembly Research, said the size of the merged entity meant it would not necessarily trigger an official CMA investigation.
“But with consolidation in the fibre sector widely expected,” he said. “It may be instructive for the wider market that an informal review is done, if only to take no further action.”
Virgin Media O2, Liberty Global, Telefónica, InfraVia, Netomnia, CityFibre, Nexfibre and DigitalBridge declined to comment. Advencap and Soho Square Capital did not respond to a request for comment.