Investment company LetterOne was forced to sell the business on national security grounds
Virgin Media O2 has struck a deal to acquire UK broadband provider Upp that oligarch-backed investment company LetterOne was forced to sell on national security grounds.
The UK telecoms group will initially buy the business before selling it on to a joint venture called Nexfibre between its owner Liberty Global, Spain’s Telefónica and InfraVia Capital Partners within the next year.
The British government ordered the sale of Upp late last year after deciding LetterOne’s ownership of the company was a “risk to national security”.
LetterOne is not the subject of sanctions but some of its founders, including Russian oligarchs Mikhail Fridman and Petr Aven, have been under sanctions in various jurisdictions.
Proceeds from the sale of the business, which was announced on Wednesday, will not go to any individual under sanctions. The deal has been struck in the “high tens of millions of pounds”, according to people familiar with the terms, although the companies declined to provide a value.
LetterOne moved swiftly to sever links to its owners, including freezing their shares and dividends, after Russia invaded Ukraine, to prevent similar action against the investment company.
LetterOne acquired Upp in 2021 with plans to create a £1bn broadband network to compete with BT. LetterOne has continued to invest in the business despite the sanctions on some of its founders, but was taken by surprise with the order to sell the business last year.
The order was one of the few uses so far of the UK’s National Security and Investment Act, which came into effect last year. The government has told Upp to complete a security audit of the broadband network prior to sale.
LetterOne said: “We strongly disagree with the government’s decision to force the sale of Upp and we will continue to challenge it. But we have always been committed to safeguarding the future of Upp.”
The deal is one of the first big signs of consolidation among “altnet” broadband providers by the large infrastructure groups that many analysts have been predicting.
Matthew Howett, analyst at telecoms research group Assembly, said: “Altnets are a key piece of the connectivity jigsaw, but consolidation has been inevitable as new sources of funding dry up, focus on take-up intensifies and investors increasingly demand returns.”
Upp has about 4,000 retail and business customers and offers broadband services to about 175,000 premises in the east of England.
Virgin Media O2 and Nexfibre said that more than £350mn would be invested to build out the network to more than 500,000 premises by 2026.
Lutz Schüler, chief executive of Virgin Media O2, said that it and Nexfibre had a “clear strategy in place to be the biggest fibre challenger in the country, offering greater choice and competition to the BT status quo”.
Andrea Salvato, chairman of Nexfibre, said that the deal would help “build and expand our network in suburban and semi-rural areas, closing the digital divide and boosting local economies”.
Source: Financial Times
