Virgin Media O2 goes all-in on fibre and mulls broadband wholesale market

Newly merged Virgin Media O2 has announced it plans to upgrade its entire fixed network to fibre. The operator is also assessing the prospect of becoming a fixed broadband wholesaler.

Two months after it was created by the merger of Virgin Media and O2, the new integrated operator announced its fixed network upgrade plan for the next seven years. Virgin Media O2 said its fixed network in the UK will be upgraded to full fibre to the premises (FTTP) by 2028, which will be capable of delivering symmetrical 10Gbps download and upload speeds and beyond.

“This major new fibre upgrade programme will see us begin the next evolution of our network, building on the investment, firepower and leadership we already have and ensuring we’re fibre fit for the future,” Lutz Schüler, CEO of Virgin Media O2, was quoted in the press release.

The new lifestyle and work pattern quickly adopted by businesses and customers throughout the world during the pandemic has accentuated the demand for high speed internet access, driving operators to accelerate the rollout of broadband access, which had been a priority for many of them even before Covid-19. One benchmark used in the industry is the so-called gigabit broadband, the capability to deliver one gigabit per second speed.

According to research firm Omdia, there are by now more than 300 service providers in the world offering at least 1Gbps download speeds. In practice there are two technologies that can offer this speed on fixed networks: cable and fibre. Although legacy cable networks can undergo limited upgrade, using different versions of the Data Over Cable Service Interface Specification (DOCSIS) standard, to achieve gigabit speed, it makes more sense for new updates to go from copper to fibre directly.

This is Virgin Media O2’s plan. While rolling out FTTP aggressively to new areas, the company in short-term will upgrade its cable network to DOCSIS 3.1 to fill the gap on its gigabit map. With this, the operator claims, it can meet its 2021 gigabit targets, delivering speeds of 1.1Gbps across its entire network by the end of this year, “meeting the Government’s stated broadband targets four years ahead of schedule.”

In the long run, however, Virgin Media O2 will not upgrade cable to DOCSIS 4.0. Instead it will go for full fibre. The cost for FTTP per premises passed will be around £100, compared to £60 pounds per premises passed through updating cable to DOCSIS 4.0. Virgin Media O2 believed the additional cost is justifiable calculated by the benefits it can generate for its customers, and presumably, the premium it can charge.

Virgin Media O2 also believed that the incremental cost is also modest to consider that it spends about £2 billion CAPEX per year. With the plan to increase the number of premises covered from 1.2 million to 14.3 million, which is served by cable, the annual additional cost would be on average about £80 million, or 4% on top of the operator’s current annual CAPEX.

“Right now, we have the UK’s leading gigabit network, and this upgrade means we’ll be even stronger for the decades ahead, pursuing new opportunities and putting words into action,” Schüler also said. One of such new opportunities is to enter the fixed broadband wholesale market, becoming a true challenger to BT. If this potential should be realised it would be good news to the regulators that approved the £31 billion merger, fulfilling one of the deal’s key promises.