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Alternative network operator Netomnia (Substantial Group), which has deployed their own full fibre broadband (FTTP) network to cover 3 million UK premises RFS (inc. 445,000 customers), have today confirmed that they’ve been acquired by the owners of Virgin Media (O2) and nexfibre (i.e. InfraVia, Liberty Global and Telefónica) for £2bn. But rival bidder CityFibre may yet raise a competition complaint.
At present Virgin Media (O2), which is controlled by Telefónica UK and Liberty Global as part of a 50:50 Joint Venture (JV), operates a gigabit-capable fixed line broadband network that covers over 16 million UK premises (mostly in urban areas). The network itself reflects a mix of hybrid fibre coax (HFC) and full fibre (FTTP) connections, although they’re aiming to upgrade all of that to full fibre (costing c.£100 per premises).
In addition, Telefónica UK, Liberty Global and InfraVia Capital also jointly own the semi-separate nexfibre business, which has rolled out an open access (wholesale) full fibre network to 2.5 million premises in areas NOT currently served by Virgin Media’s own network. But at the time of writing, the only two retail ISPs selling services via nexfibre all share some of the same parentage (Virgin Media and giffgaff).
As previously reported on these pages, VMO2’s parent – Liberty Global – and CityFibre have spent the past few months battling over a major network consolidation deal to acquire Netomnia / Substantial Group (here and here), which could have a notable impact upon the competitive landscape. The big news today is that InfraVia, Liberty Global and Telefónica have won the competition.
Netomnia is expected to have more than 3.4 million FTTP premises and over 500,000 customers by deal completion. The acquisition will be made through the parties’ joint venture company, nexfibre, and will unlock £3.5 billion of investment in the UK market (this figure reflects the projected nexfibre capex spend between 2026-2040 as a result of the transaction).
Joint statement – Vincent Levita, Founder & CEO of InfraVia Capital Partners, Mike Fries, Chairman & CEO of Liberty Global, and Marc Murtra, Chairman & CEO of Telefónica, said:
“By bringing our strengths together, we are creating a scaled and financially secure wholesale fibre challenger to BT Openreach – one that will enhance competition, strengthen the UK’s digital infrastructure and deliver greater choice and quality for consumers and businesses.
This transaction unlocks £3.5 billion in international investment and reflects our shared confidence in the UK as a highly attractive market for long‑term investment, supported by the government’s economic policies. We are committed to accelerating full‑fibre coverage and helping ensure the UK remains competitive and ready for the future.”
Jeremy Chelot, Group CEO of Substantial Group, said:
“This landmark transaction with nexfibre represents the natural evolution of the UK’s fibre market. Consolidation has been inevitable, and this deal creates the scaled, sustainable platform needed to drive genuine wholesale competition. Importantly, our retail brand, YouFibre, will remain post-close, ensuring our customers continue to receive the same trusted service they know today, while benefiting from the financial strength and infrastructure scale this combination delivers. This is about building a stronger future for UK fibre.”
As part of the deal, nexfibre will sell Substantial Group’s retail ISP businesses, including the YouFibre and Brsk brands, to VMO2 for £150m “ensuring customers continue to receive the same trusted service they know today“. In addition, nexfibre said they will finance the FTTP upgrade of the 2.1m VMO2 Hybrid Fibre Coax (HFC) homes (i.e. those that are adjacent to the Netomnia footprint) with VMO2 paying wholesale fibre access fees on its customers in those homes as the fibre becomes available (with the “majority expected to be ready by the end of 2027“).
In exchange for the wholesale traffic commitment on the 4.6 million premises, VMO2 stands to receive 1) c.£1.1bn in cash, and 2) an indirect 15% stake in nexfibre. The vast majority of the proceeds will be available for deleveraging and the £150m to finance the purchase of Substantial Group’s 500,000 customer base. VMO2 will also provide a full suite of managed services to nexfibre – including construction – in return for ongoing management and construction fees.
On the surface, such a deal would appear to be of debateable merit. Netomnia’s fibre has already overbuilt a good chunk of Virgin Media’s existing network, although there’s only a smaller overlap with nexfibre’s FTTP. VMO2/nexfibre would thus gain some additional FTTP coverage through the deal and a nice boost in customer numbers, but whether that’s enough to justify the price tag is another question. The faster upgrade path in HFC areas is a benefit too, but it’s not like VMO2 were spending much on those in the first place.
However, the buyers also gain by removing a rapidly rising competitive player in the alternative network space, which at the same time prevents the market’s largest altnet – CityFibre – from securing its own merger with the Netomnia and thus growing the scale it needs to properly compete; this alone could be seen as a win for VMO2, albeit a potentially expensive one.
On the flip side, a sizeable portion of Netomnia’s customer base will have chosen them for their faster speeds, lower pricing and to escape from legacy incumbents like Virgin Media O2 and their cycle of inflation busting mid-contract price hikes. Suffice to say that most of the feedback we’ve seen from earlier reports suggests that many subscribers will be deeply unhappy with VMO2 gaining control.
On this point it’s positive that the YouFibre brand and its current services are to be maintained (seemingly adopting a similar approach to giffgaff), although over time we can’t help but wonder how their service and prices may change (i.e. will VMO2 be able to resist importing their old habits to the same base). A question mark also remains over the impact upon Netomnia’s pool of third-party ISPs at wholesale (e.g. Aquiss).
For consumers, a deal between Netomnia and CityFibre is likely to have been much more palatable, which is due to the limited level of network overbuild and their shared position as lower cost broadband disruptors; this would have made for a more competitive market. But in the end, CityFibre simply struggled to deliver the most attractive offer.
The big question now is over how the Competition and Markets Authority (CMA) may view the deal, although we suspect they’d be unlikely to view VMO2 and nexfibre as being completely separate. The CMA is thus likely to consider the wider competitive ramifications of such a major operator buying into control of the altnet space like this, and our sources suggest that CityFibre are prepared to raise a competition complaint.
However, given the CMA’s recent flexibility toward big telecoms mergers (e.g. Three UK and Vodafone), it’s reasonable to expect that they may still allow the deal to go through – possibly with some concessions. Quite what form those concessions, if they do indeed materialise, may take is as yet unclear. But we wouldn’t be surprised if it included stricter wholesale requirements for Virgin Media’s consumer focused broadband network, which is something the operator has already been trying to develop (here).
Completion of the transaction is subject to customary regulatory approvals and is expected by Q3 2026. But after that will come the long, costly and complex process of network integration work.
UPDATE 2:13pm
CityFibre’s boss has responded to the deal.
Simon Holden, CEO of CityFibre, said:
“There’s an 80 percent overlap between these two players and, if the deal goes ahead, it would significantly reduce competition and the choice available to consumers, as well as force hundreds of thousands of Netomnia customers back to VMO2. Given the scale of this overlap, the CMA must thoroughly examine the deal.
Competition has driven lower prices, faster speeds and better services and this deal risks re-establishing an ineffective duopoly of BT and VMO2 and undermining the significant progress the UK has made.”