(Bloomberg) — The owners of Virgin Media O2 have created a joint venture with infrastructure investor InfraVia Capital Partners to build between 5 million and 7 million new fiber connections across Britain.
The partners will invest £4.5 billion ($5.5 billion) in the new network, the companies said in a statement on Friday.
It will be 50% owned by Liberty Global Plc and Telefonica SA, and 50% by InfraVia. The deal is expected to close by the end of the year.
It marks a major step up in the cable, mobile and TV group’s challenge to Britain’s biggest carrier, former state monopoly BT Group Plc.
Infrastructure ventures like this are designed to access a lower cost of capital while sharing expensive, long-term rollouts. Liberty and Telefonica have done a number of similar deals in their other markets.
The two telecom groups created London-based VMO2 in a merger last year to combine operations and sales of mobile, broadband and TV services.
The investment will include £3.3 billion in debt and £1.4 billion in equity, the companies said.
The fiber optic connections will be built over the next four years, taking VMO2’s footprint to 80% of households in the country, up from about half today. A lot of that network is cable, but a year ago the company set out plans to overlay it with fiber optic lines.
BT shares fell 2% at 12:45 p.m.
in London trading on Friday. Telefonica was little changed. Liberty Global fell 2.6% to $20.88 in New York trading on Thursday.
Wholesale
In addition, Virgin Media O2 is in talks with potential wholesalers who could sell internet services over the new network as well as its existing footprint of 15.9 million premises, Chief Executive Officer Lutz Schueler said in an interview with Bloomberg.
“Obviously it’s now highly attractive for possible wholesale partners, because if they enter in the deal with the fiber joint venture and Virgin Media O2, they get access to a minimum of 21 million fiber homes,” he said.
Reselling network access to wholesalers would mark a major shift for VMO2, which currently only sells its own Virgin Media broadband service.
Read More: Virgin Media, O2 Combine to Create New Telecom Giant
Chaired by billionaire “cable cowboy” John Malone, Liberty last year signed a similar fiber optic joint venture in Germany, also with InfraVia.
Telefonica has done analogous deals in Germany, Brazil, Colombia and Chile, and this week announced a deal in Spain to roll out a network in under-served rural areas.
The deal structure means Liberty’s financing is “a very manageable £350 million phased over 4 to 5 years,” Jefferies analyst Ulrich Rathe said in a note to clients.
Bloomberg reported Thursday that the companies had received binding offers for the project.
(Updates with CEO comments and further context throughout)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
