Virgin Media O2 buys Russian-backed broadband provider

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Virgin Media O2 has struck a deal to buy UK broadband provider Upp after oligarch-backed investment firm LetterOne was forced to sell the provider on national security grounds.

The British telecoms group will initially buy the business before selling it next year to a joint venture called Nexfibre between its owners Liberty Global, Spain’s Telefónica and InfraVia Capital Partners.

The British government ordered the sale of LetterOne late last year after it determined that its ownership of the company posed a “national security risk”.

LetterOne has not been sanctioned, but some of its founders, including Russian oligarchs Mikhail Fridman and Petr Aven, have been sanctioned in multiple jurisdictions.

Proceeds from the sale of the business, announced Wednesday, will not go to any sanctioned individuals. According to a person familiar with the matter, the value of the deal is “up to tens of millions of pounds”, although the two companies declined to disclose the specific amount.

LetterOne moved quickly to sever ties with its owners following Russia’s invasion of Ukraine, including freezing its stock and dividends to prevent similar action against the investment firm.

LetterOne bought Upp in 2021 with plans to create a £1bn broadband network to rival BT. LetterOne continued to invest in the business despite sanctions against some of its founders, but was surprised by an order to sell the business last year.

The order is one of the few uses so far of Britain’s National Security and Investment Act, which came into force last year. The government has required Upp to complete a security audit of the broadband network before it can be sold.

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 remain committed to safeguarding the future of Upp.”

The deal is one of the first signs of consolidation of the “altnet” broadband provider by the big infrastructure group, as predicted by many analysts.

Upp has around 4,000 retail and business customers and provides broadband services to around 175,000 premises in the East of England.

Virgin Media O2 and Nexfibre said they would invest more than £350 million to build the network to cover more than 500,000 venues by 2026.

Lutz Schüler, chief executive of Virgin Media O2, said the company and Nexfibre had a “clear strategy to become the country’s biggest fiber challenger, offering more choice and competition to the BT status quo”.