Virgin Media O2 (VMO2) is said to be exploring a potential acquisition of Cityfibre, a challenger broadband provider, in a deal that could be worth up to £3 billion. Talks have already begun between Liberty Global CEO, Mike Fries, and Cityfibre CEO, Greg Mesch. Cityfibre is one of the largest “alt net” broadband providers in the UK, with its full fibre broadband reaching approximately 2 million homes. By 2025, the company aims to have reached 8 million properties.

If the acquisition goes ahead, VMO2 would expand its network, meeting its target of upgrading its entire network to full fibre, with around 50% of Cityfibre’s network overlapping with its own. The purchase would allow VMO2 to compete more effectively with BT’s Openreach network. However, the acquisition is likely to be subject to scrutiny from competition regulators due to the significant overlap between the two companies’ networks.

Goldman Sachs-backed Cityfibre could command a price tag of over £3 billion. The company raised £4.9 billion in debt financing last year and has a strong market position, having provided services to telecoms providers such as Vodafone and TalkTalk. Despite this, the company announced plans last month to cut up to 400 jobs, equivalent to a fifth of its workforce, to reduce costs. Cityfibre also incurred losses of almost £50 million in 2021.

Industry experts have questioned VMO2’s negotiating position. James Barford, Head of Telecoms Research at Enders Analysis, believes Cityfibre’s scale makes it attractive to VMO2 but warned of the regulatory hurdles that may arise from such an acquisition. On the other hand, John Karidis, a telecoms analyst at Numis, believes that VMO2 may be negotiating from a position of weakness due to the fact that much of its existing broadband network is cable, not full fibre, and Liberty Global's nearly 25% decline in share price over the past year.

Cityfibre and other alternative network (alt net) providers have expressed concerns about planned wholesale price cuts that would undercut them by locking customers into longer deals, raising fears of their viability as a business model. In response, Ofcom has extended its investigation into the price plan, known as Equinox II, following a backlash over comments made by BT CEO Philip Jansen.

Neither VMO2 nor Cityfibre have commented on the potential acquisition.