A bizarre love triangle is forming between Sky, Liberty Global and a newly formed subsidiary called Liberty Fibre, with the three firms establishing a fiber network collaboration which could see Sky swap its current wholesale partner Openreach for Virgin Media. Openreach’s grip on the UK market is waning, but is there scope for a Sky-Liberty fiber foray elsewhere in Europe?
With Liberty Global’s European cable TV exodus in full swing, following the sale of assets to Vodafone including Unitymedia in Germany along with UPC in Hungary and Czech Republic, getting hard and fast into fiber is looking increasingly like a field Liberty wants to reinvest these proceeds. While for Sky, the collaboration is an opportunity to funnel its Comcast-backed OTT video content clout into UK fiber homes as its core business model continues the transition away from satellite delivery. It’s a win-win situation, unless of course you are incumbent operator British Telecom.
After Liberty Fibre was spotted on UK site Companies House last week, the Financial Times reported that Sky and Liberty were already in discussions for Sky to invest in Virgin Media’s fiber network while at the same time making Sky a customer. In short, the two fierce rivals are buddying up to take on BT in a move which is sure to ruffle some regulatory feathers.
Liberty Fibre wants to roll out full fiber network infrastructure in rural areas, in a project which requires some serious financial backing, so having Sky on board as an investor as well as a wholesale customer would be a brilliant bit of business by Liberty.
As such, the partnership is an immediate retaliation to Openreach’s recently announced plans to build FTTP network infrastructure across 36 new locations over 12 months. Today it reaches over 1.5 million homes and aims to reach between 3 million and 4 million premises by March 2021 and onto an ambitious 15 million by mid-2020s. Sky has a UK fiber market penetration of around 38%.
As mentioned, a few weeks ago Liberty Global completed the sale of its German and Central European assets to Vodafone – but this deal is not over the finishing line just yet as Deutsche Telekom plans, alongside cable industry associations and some smaller MSOs in Germany, to vehemently campaign to block the deal. As a result, Vodafone becomes the largest owner of gigabit-capable network infrastructure in Germany – the very reason for the backlash despite a concession agreement with Telefonica Deutschland.
While the UK already has an example of a wholesale network provider on the fixed line side in Openreach, this pattern may – in time – be replicated in shared mobile build-outs in some countries (the UK and other markets are seeing steps in this direction with an increase in active and passive infrastructure sharing). Incumbent BT was forced by regulator Ofcom to spin out its Openreach division to ensure fair treatment for all broadband and mobile backhaul networks, rather than favorable treatment for BT’s retail arm and its MNO, EE.
In theory, a truly independent sole-provider of network infrastructure could deploy coverage in the most efficient manner, without incurring the wasted investments that competitive rivals face when covering the same town four times over. However, a single provider doesn’t face the same open market competition, and that runs the risk of leading to lack of innovation and poor performance.
Relying on government policy to keep the sole-provider up to spec leaves it vulnerable to changes in government priorities too.
Further, as Ofcom is reporting, the new rules for Openreach have not silenced all complaints. Ofcom decided not to go as far as an entire legal separation of the subsidiary, when it made the decision back in 2017, but it is now recommending further action be taken. Currently, Openreach still has its budgets allocated by BT, and its profits go back to BT too – which of course, was at one point (as the name suggests) a state-owned firm.
We can take the Ofcom-Openreach experience as indicative of the trouble in forcing an existing wholesale provider to become independent. So given, the firm is so full of existing business relationships that it would need a complete gutting of the leadership to rectify this and then aggressive hiring to make up for the loss of experience, it seems that the better approach would be to create one focused solely on the new technologies.
Reports of Sky and Liberty’s unexpected tie up arrived around the same time as data projecting fiber to grow at a CAGR of 12.4% to become Europe’s leading fixed broadband technology by 2023. Today, xDSL is the continent’s leading fixed broadband technology, according to GlobalData, growing from a 30% share of lines in 2019 to 41% in four years. By region, the forecast has Russia down as having the highest penetration of fiber in Europe, with 75% of total broadband lines claiming to be FTTH or FTTB. Spain meanwhile will surpass Russia by 2023 with an 86.5% share of total broadband lines running on fiber technology.