BT Group surges on report Virgin Media O2 nearing deal to use its network

(Sharecast News) - BT Group surged on Friday following a report that Virgin Media O2 is closing in on a deal to use its rival's broadband network, as it halts planned upgrades and expansion of its own infrastructure to ease concerns over its £22bn debt pile.

The Financial Times cited people familiar with the matter as saying that under the terms of the deal being discussed, VMO2 would rely on BT's Openreach network to host new customers in areas that are not covered by its existing network.

It was also understood that the broadband provider was pausing efforts to upgrade its cable network to fibre as part of a wider cost-cutting programme. VMO2, jointly owned by Liberty Global and Telefonica, has become one of the most closely tracked companies in the credit markets this year.

It was hit by a selloff in its bonds over the summer as investors grew concerned that price competition from small fibre network operators, known as "altnets", was hampering the company's ability to service its £22bn debt pile.

VMO2 was poised to receive a cash injection of £1.1bn in return for transferring 4.6m homes on to a network owned by Nexfibre. However, the UK's antitrust watchdog signalled this month that it was planning to block the £2bn deal, which would involve VMO2 taking a 15% equity stake in Nexfibre.

The company currently serves customers through Nexfibre's network as well as its own. Only about 9m of the 19m homes it covers in total have access to a fibre connection. Sources told the FT that plans to upgrade the remainder have now been abandoned.

At 1225 GMT, BT shares were 6.7% higher at 227.20p.