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BT shares slide as Virgin Media O2 launches ultrafast broadband assault

Virgin Media cable
Virgin Media cable

Virgin Media O2 has unveiled plans to upgrade more than 14m homes and businesses to ultrafast full fibre in an attack on BT's dominance of the broadband market.

The newly merged company will expand its full fibre network over the next seven years, as BT and smaller broadband builders race to kit out the nation with gigabit speed connectivity.

The rollout will build upon the 1.2m homes connected to full fibre through Project Lightning by installing fibre inside tunnels already used by its cable network.

The move will enable Virgin Media O2 to step up its challenge to BT's infrastructure builder Openreach by handing it more opportunities to offer wholesale access to broadband retailers such as Sky, Vodafone and TalkTalk.

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Shares in BT fell more than 8pc to 169p as investors reacted to the Virgin announcement and its first-quarter update.

Lutz Schuler, chief executive of Virgin Media O2, said the new fibre upgrade was an "offensive investment" that would allow the company to "go and win more business".

He said: "We haven't entered the wholesale business at all, so we need to see how that will work out. We want to be the fastest today, and remaining the fastest in the future is the strongest position to negotiate from."

Broadband builders are under pressure from Boris Johnson to upgrade 85pc of the UK to gigabit speed broadband by 2025.

BT is planning to spend £15bn on upgrading 25m homes and businesses from copper phone networks to faster full-fibre broadband by December 2026.

Virgin Media O2 will continue to develop its cable network as it attempts to bring one gigabit speeds to 16m homes by the end of this year - the equivalent of two-thirds of the Prime Minister's pledge.

The company said its full-fibre upgrade would be "one of the UK's most efficient", costing £100 per premises and increasing its capital expenditure by £2bn a year.

Mr Schuler said the low cost estimate was based on "several pilots" the company had carried out with its broadband technicians.

Nick Delfas, a Redburn analyst, said Virgin Media O2 was "clearly worried about the impact of Openreach's build on its retail base".

He said: "Virgin’s Lightning experience suggests we should treat the £100/home upgrade assumption with some scepticism; it will cost more and take longer than they say.

"However, the biggest question is what this means for the likes of CityFibre and other over-builders – will there really be enough retail oxygen for them to be successful if BT and Virgin Media O2 have fibre and Sky won’t sign up?”

Virgin Media O2 sealed its £31bn merger in April, creating a telecoms giant with revenues of £11bn and 47m customers.

In its maiden set of results since the deal, the company said profits rose 6pc to £935m in the second quarter after adding 36,000 broadband subscribers and 1m mobile connections.

Separately on Thursday, BT said revenues fell 3pc to £5bn and pre-tax profits dipped 4pc to £536m for the three months to June as "challenging market conditions" affected its overseas arm.

Philip Jansen
Philip Jansen

All parts of the business had delivered profit growth during second quarter except Global, which has been hit by a pandemic-induced slowdown.

Profits at Global, which provides network, cloud and cyber security services to international firms, dropped 28pc to £102m as companies delayed spending in the wake of the Covid crisis and a number of large contract renewals in 2020.

Philip Jansen, chief executive of BT, said the move by Virgin Media O2 "made complete sense" and he remained "very confident" of BT's plans.

He said: "The country needs two top quality companies delivering the best technology and we need competition to drive innovation."

Mr Jansen is trying to modernise BT by slashing costs and offloading fringe operations to help steer the company back to growth.

The Telegraph revealed in April that BT had appointed bankers to explore a sale or partnership deal for pay-TV channel BT Sport. Mr Jansen said he hoped to have secured a deal by the end of the next quarter.

Neil Campling, a Mirabaud Securities analyst, questioned whether BT's share price fall was an "overreaction" given Virgin Media O2's controlling shareholder, Liberty Global, had hinted at the prospect last month when boss Mike Fries said they "wouldn't stand still on technology".

He said: "Virgin Media’s marketing focus on high speeds as a differentiator hasn’t cause a collapse in Openreach market share in the past (when their speed gap over Openreach was far greater than the future), and there is no reason to suggest this should significantly change."

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