Pedro Sánchez, the Spanish prime minister, increased his country’s holding in Telefonica to 10pc last year - Javier Lizon/EPA-EFE/Shutterstock

A £1bn broadband deal aimed at challenging the dominance of BT is in doubt following an intervention by Spain’s socialist prime minister.

Virgin Media O2, which is jointly owned by US-based Liberty Global and Spain’s Telefonica, has been trying to raise £1bn from investors through the sale of a stake in its new wholesale business.

The division plans to sell access to VMO2’s broadband network to internet service providers such as Vodafone and Sky in a direct challenge to BT’s Openreach.

It has also been slated as a potential consolidator in the broadband market as an eye-watering increase in interest costs has fuelled expectations of a wave of collapses among challenger “alt net” firms.

However, Liberty Global said it has now paused the sale process while Telefonica carries out a strategic review. NetCo was originally slated to launch in the first half of the year, but this has now been delayed.

Mike Fries, the chief executive of Liberty Global, said: “We pride ourselves on being good partners and we appreciate and understand Telefonica’s position ... We’re going to give them the time they need to figure it out.”

It comes at a time of upheaval for Madrid-based Telefonica, which has been mired in uncertainty since the dramatic ousting of long-serving chief executive José María Álvarez-Pallete.

His exit is widely thought to have been driven by Pedro Sánchez, the Spanish prime minister, who installed Blackburn-born executive Marc Murtra as Mr Álvarez-Pallete’s replacement.Jose Maria Alvarez-Pallete’s exit is believed to have been driven by Spain’s PM - Stefan Wermuth/Bloomberg

The Spanish government last year became the largest shareholder in Telefonica after increasing its holding to 10pc in response to stake-building by Saudi Arabia’s sovereign wealth fund.

The turmoil comes as Mr Sanchez is already under pressure over a huge power cut that plunged Spain into chaos on Monday, leading to several deaths.

Mr Murtra has launched a strategic review at Telefonica after the company reported a €49bn (£42bn) loss last year, with the results due to be announced in the second half of the year.

The overhaul at the Spanish telecoms giant has fuelled uncertainty about the future of VMO2, which is grappling with a £21.5bn debt pile. Telefonica last year wrote down its 50pc stake in the joint venture by €1.8bn.

Both Telefonica and Liberty Global now have the right to kick off an initial public offering for VMO2 after a lock-up period under the terms of the £31bn merger expired last year.

Mr Fries has previously said he is open to selling off Liberty’s stake and on Friday insisted: “We’re not closing any doors.” However, Telefonica’s position under its new leadership is less clear.

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‘Irrational’ alt-net market

Liberty also said on Friday that it was cutting back network build targets for Nexfibre, the broadband infrastructure company it owns with Telefonica and InfraVia, a French private equity firm.

Nexfibre, which is building its own full-fibre network, will now aim to reach 2.5m premises by the end of 2025, down from a previous target of 5m.

The slowing build marks efforts by the company to redeploy its capital to potential acquisitions in an “increasingly irrational” alt-net market.

It came as VMO2 lost 46,000 broadband customers in the first quarter, which it blamed on heavy discounting by rivals.

Separately, alt-net Netomnia said on Friday that it had raised £160m in fresh debt funding, bringing its total raised to just over £1bn. The Tewkesbury-based broadband challenger is aiming to reach 5m premises by 2027.

VMO2 and Telefonica declined to comment. Liberty Global has been contacted for comment.

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