VMO2, Telefónica's British subsidiary, is negotiating the purchase of a rival for 2.3 billion euros.

Virgin Media O2 (VMO2), the British telecoms operator that is a 50% subsidiary of Telefónica and the US-based Liberty Global, is in negotiations to acquire Netomnia, the UK's fourth largest broadband network operator, in what would be a landmark deal to consolidate the British telecoms market.

The acquisition of Netomnia could reach a value of approximately 2 billion pounds sterling, about 2.3 billion euros, according to two sources familiar with the matter.

Netomnia's fiber optic network reaches 2.8 million homes and has more than 400,000 customers . According to one source, an agreement could combine Netomnia's network with VMO2 's own operations and those of Nexfibre , a broadband joint venture between VMO2 shareholders Liberty Global and Telefónica , along with InfraVia Capital , to create a fiber network serving 8 million homes.

This move would help VMO2 consolidate its position as BT's biggest broadband competitor to Openreach . Openreach is BT's fixed-line division, which the former British telecoms monopoly was forced to spin off by the regulator and which is rolling out BT's fiber optic network.

VMO2's move could also mark the first step in an anticipated consolidation of the UK domestic fiber optic market . Faced with the country's lag in fiber deployments, the British market saw the emergence of numerous companies offering local or regional fiber optic networks, which were dubbed alternative networks or allnets.

However, most of these companies are experiencing financial difficulties due to the debt they have incurred and the reluctance of financiers – banks and infrastructure funds – to continue injecting resources.

Netomnia, founded in 2019, offers its customers fiber optic broadband and is the second largest alternative network ( altnet ) provider after CityFibre . VMO2 has 5.6 million broadband customers and also offers mobile service.

Non-exclusive talks would be a major blow to CityFibre, which has long touted itself as best positioned to acquire smaller broadband providers and solidify its status as a competitor to VMO2 and BT. According to several sources familiar with the matter, CityFibre has also approached Netomnia to explore a potential partnership . They added that a deal with CityFibre, which would include both cash and equity, remains a possibility. Virgin Media O2, Telefónica, Netomnia, CityFibre, Nexfibre, and Liberty Global declined to comment.

The anticipated agreement comes at a challenging time for the dozens of smaller fiber network operators , as the number of customers choosing their services is lower than expected. Following a post-pandemic investment boom that financed the high cost of laying fiber optic lines, the sector now faces higher interest rates and net debt exceeding £8 billion, according to estimates by Enders Analysis .

Netomnia is one of the few players with minimal debt levels , making it an attractive target. A deal between VMO2 and Netomnia is unlikely to encounter competition concerns, as telecom regulator Ofcom has indicated that consolidation in the market was inevitable.

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