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BT faces further pressure as Sky nears broadband deal with Virgin Media

Sky and Virgin Media executives met for talks on Friday as the pair eye a potential UK fibre broadband collaboration, according to reports at the weekend

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The growing chances of Sky and Virgin Media forming a superfast broadband collaboration will heap further pressure on BT Group PLC (LON:BT.A) in several ways, analysts say.

Sky, which is now owned by Comcast Corp (NASDAQ:CMCSA), is leaning towards investing in a UK fibre-to-the-home (FTTH) joint venture with Liberty Global PLC’s (NASDAQ:LBTYA) Virgin Media, according to weekend reports, with a meeting taking place between the two companies at the end of last week.

READ: BT boosted by Ofcom plans to “supercharge” fibre broadband investment

Although Sky, which has 6.2mln broadband subscribers, has been content to buy wholesale broadband from BT’s Openreach arm in the past, under Comcast’s ownership it is now reluctant to be solely reliant on Openreach and so is inclined to invest in FTTH, the Telegraph report indicated.

Comcast and Sky are sceptical about the ability of Cityfibre and other alternative networks, or ‘altnets’, to build a FTTH network in the face of competition from Openreach and Virgin Media, which could “reignite” the fibre footprint expansion that has been muted in recent quarters.

It would be “negative for BT”, analysts at UBS said, if Sky and Virgin Media form a FTTH joint venture.

BT, which is due to report on third-quarter numbers this Friday, would lose a chunk of the estimated £700mln that Sky pays Openreach for wholesale each year, according to UBS's calculations, as well as facing pressure on the premium that Openreach could charge for FTTH, lowering its future returns from FTTH.

Furthermore, if a Sky-Virgin fibre partnership expands rapidly, this could lead to loss of retail market share for BT, where its current cable network covers around 55% of the UK.

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LSE:BT.A
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