Sky talks on partnering with Virgin Media O2 hit BT

British pay-TV company Sky is in talks about investing in Virgin Media O2’s plan to extend its network to 80% of the country, including the possibility of spinning out the cable company’s entire network into a joint venture, a source said.

Virgin Media 02, jointly owned by Liberty Global (LBTYA.O) and Telefonica (TEF.MC), following a deal completed on June 1, has announced a plan to upgrade its cable network serving 15.5 million premises to full fibre by 2028, stepping up its challenge to BT (BT.L).

It wants to extend its network to another 7 million premises in the coming years, covering about 80% of the country, once the right “building blocks” are in place. read more

News of Virgin Media O2’s discussions with Sky, first reported by the Sunday Telegraph, sent shares in BT down by as much as 8% on Monday to a six-month low.

The talks between Virgin Media O2 and Sky, owned by Comcast (CMCSA.O), are at an early stage and involve a number of investment structures, said a person with knowledge of the matter, who asked not to be named because the talks are still at a preliminary stage.

Virgin Media O2 is also in talks about providing wholesale access to its network to broadband operators including Sky, TalkTalk and Vodafone.

Its CEO Lutz Schueler said last month talks were progressing but it was in “no hurry” to strike a deal.

Sky, TalkTalk and Vodafone all provide broadband using BT’s Openreach network.

BT has embarked on its own infrastructure programme, taking fibre to 25 million premises by the end of 2026, two years ahead of Virgin Media’s network upgrade target.

It expects Sky to remain a wholesale partner for its full fibre network build, a separate person familiar with the situation said on Monday. BT is also seeking a partner for some of its investment plans.

The second source said Sky may seek to give some volume to Virgin, but would also use BT.

Analysts at Jefferies said BT was likely to complete its network build ahead of the Virgin plan and there were strong reasons for Sky not to go with Virgin.

Virgin Media O2, Sky and BT declined to comment. Reuters