Virgin Media O2 cuts costs, revamps fibre plans

• As expected, Virgin Media O2 (VMO2) has unveiled cost-reduction measures and a shift in its fixed broadband network strategy
• The UK operator is to cut staff costs by 30% by shrinking its workforce and use AI to automate operational processes
• The top executive team will be revamped
• The news comes as VMO2 reports a dip in third-quarter sales, earnings and customer numbers

It’s crunch time for Virgin Media O2 (VMO2), the UK operator co-owned by Liberty Global and Telefónica. With revenues and earnings in decline, competition eating into its mobile and fixed broadband customer bases, debts weighing on its balance sheet and regulatory decisions impacting its plans, VMO2 has unveiled a plan to cut costs, reduce its headcount, shake up its management team, revamp its broadband network strategy and turn to AI and “digital tools” to automate more day-to-day processes.

The news will not come as a surprise, as reports have been circulating during the past few days of major changes to come at VMO2, but now there is an official announcement that provides an overall view of the shake-up.  

The numbers

VMO2 has reported its third-quarter numbers and they are mostly heading in the wrong direction.

Total revenues for the three months to the end of September 2026 were down by 5.7% year on year to £2.43bn, service revenues dipped by 3.5% to just over £2bn, while adjusted EBITDA was down by 2.6% to £995.2m. For the full year, VMO2 expects total service revenues and adjusted EBITDA to both decline by 3% to 5% compared with 2025. 

Its net debt remains pretty much unchanged at £21.95bn.

The operator ended September with almost 5.4 million fixed broadband customers, having lost 22,100 during the quarter, and 12.43 million consumer mobile customers, having lost 7,800 during the quarter. 

Its business mobile and internet of things (IoT) connection numbers also headed south: Full details of all of VMO2’s latest numbers can be found in this earnings announcement. 

The catalysts

Some kind of shake-up at VMO2 has been on the cards since one of its joint owners, Telefónica, decided to set up an office in London at the start of this year so it could be closer to VMO2’s management team and ensure the UK operator was “aligned” with Telefónica’s new industrial strategy (which is all about cutting costs and boosting revenues) – see Telefónica gets ‘closer’ to VMO2.

Now VMO2 has outlined its new plan, though full details will not be revealed until the operator reports its 2026 full year results (likely in February 2027). 

But it has revealed the overall structure of its new approach, including some details, and looks set to start making changes with immediate effect. 

This appears to be a reaction to the Competition and Markets Authority (CMA)’s decision in early October regarding a planned acquisition by Nexfibre, the UK wholesale fibre access network joint venture between Virgin Media O2’s parent companies, Liberty Global and Telefónica, and private equity firm InfraVia Capital. 

The CMA ruled that Nexfibre’s proposed £2bn takeover of fibre altnet Netomnia could result in a “substantial lessening of competition (SLC)”. Although the CMA gave Nexfibre the opportunity to submit any remedies that might make the CMA reconsider its position, the operator declined, describing the CMA’s decision as “fundamentally flawed”. 

While Nexfibre is not part of VMO2, it is a sister company with which VMO2 has very close ties and which plays a key role in its fixed broadband plans. Nexfibre’s refusal to submit remedies was also prompted by the “backroom deal” for major rival BT to acquire TalkTalk without, it seems likely, the same level of regulatory scrutiny, a point stressed in a recent announcement by VMO2’s CEO Lutz Schüler. 

The current state of the UK regulatory environment was referenced by VMO2 in its strategy announcement when it stated that its revamp “comes against the backdrop of a tough macro-economic climate, an intensely competitive and shrinking broadband market and a paradoxical regulatory direction in fibre that does not reflect economic reality.”  

So what is VMO2 going to do to improve its lot?

The new plan

Essentially, the operator has outlined its “upcoming strategic plan and cost reduction measures that will create a simpler company with prioritised investment to improve customer experience, commercial performance and cash generation with a commitment to reducing leverage [cutting debt]”. 

It is aiming to reduce its annual cost base by £800m by 2029, of which £400m is to be “delivered” in 2027. 

About £300m of these savings will come from “a reduction in roles and fewer organisational layers, with senior leadership changes already underway,” as well as a reduction in the use of contractors. 

Within the next two years, VMO2 expects to reduce its “people costs” by 30%, but this doesn’t mean its headcount, which currently stands at 16,000, will be reduced by 30%: The exact number of roles to be cut has not been shared but it is due to run into the thousands (reports over the weekend suggested about 4,000 roles, or 25% of the workforce, would be laid off). 

“Organisational changes are already underway with a significant reduction of senior leadership roles since the summer. This includes Executive Committee changes and the bringing together of the previous commercial and operations areas of the business under Consumer CEO, Lyssa McGowan,” noted VMO2.

The headcount reductions will cost VMO2 about £250m. 

VMO2 noted in its earnings report that its “organisational redesign [is] expected to deliver approximately £300m of the total run-rate savings”.

In other cost-cutting measures, the operator is “simplifying supplier relationships and supply chain and reviewing technology licences” and plans “a greater use of AI and digital tools to support faster decision-making and delivery”.  

The operator “expects a greater use of AI tools and digital channels to drive efficiency, productivity and better customer experience. This includes in customer service, building on the recently announced AI partnership with Sierra; network planning and fault management; and the personalisation of commercial offers.”

It added: “The result of these changes will be a leaner business that has fewer layers, greater focus, optimised investment and faster decision making to deliver a better experience for customers.” 

Broadband network strategy shift 

It will also reduce its capital expenditures by halting its plan to replace its hybrid fibre-coax (HFC) cable broadband access network connecting 14.3 million locations with fibre-to-the-premises (FTTP) infrastructure, a decision taken in 2021 with a plan to have the access network swap completed in 2028. 

But a lot has changed since 2021, with a multitude of fibre altnets investing extensively and, between them, covering large swathes of the UK, which means that in many places that VMO2 planned to deploy full fibre, BT’s Openreach division and at least one altnet would also have fibre deployed.  

VMO2 noted: “Market economics do not support three overlapping fibre networks… where any future fibre investment makes strategic sense, it will be supported off-balance sheet and only in non-altnet areas.”  

Instead of continuing to replace its HFC infrastructure with full fibre, VMO2 will now initiate a “low-cost upgrade” to the remaining cable lines in a move that will “bring 2Gbit/s services to the majority of the network in 2027”. 

VMO2 fixed network (including cable and fibre) currently reaches just over 16.2 million UK premises, while its “full fibre footprint” reaches 9.4 million premises, though that includes the Nexfibre network (which reaches more than 2.6 million premises). 

VMO2 said it is “also exploring wholesale arrangements to support the expansion of its services to offnet areas not covered by Virgin Media O2 or Nexfibre’s networks, providing an incremental revenue opportunity and flexibility for future.” What that means in practice is that VMO2 will engage with other wholesale broadband network providers to expand its reach: Last week, the Financial Times (subscription required) reported that VMO2 was set to strike a deal to use the fibre access network of BT’s quasi-autonomous Openreach division.  

The operator will continue to invest in its radio access network and make use of new spectrum assets as planned. 

Commenting on the new strategy, CEO Schüler noted: “The direction we’re setting today paves the way for the next chapter of Virgin Media O2: A company that will be leaner, clearer on priorities and faster in delivery, with brilliant brands and an unwavering focus to get back to what really makes a difference to our customers. Given the market conditions we face, the regulatory backdrop in fibre and the technological changes sweeping across all areas of the economy, standing still and doing what we’ve always done is not an option and while many of these decisions are tough, they are necessary for our future success and growth.”

He added: “While we will give a fuller update on the new strategic plan in the coming months, we are already progressing and making difficult decisions to prioritise investments and reduce costs which includes the size of our workforce. This is not something I take lightly but my commitment to our people is that for those leaving we will treat them fairly and with respect, and for those staying we will work differently, but as one team, to get back to winning again. Virgin Media O2 must evolve, and the action needed to make that happen starts now.” 

But is it all too little too late? 

Industry analyst Paolo Pescatore, founder of PP Foresight, analysed VMO2’s position in this LinkedIn post and noted: “There’s no dressing this up: Virgin Media O2 is in serious trouble, with customer losses and declining service revenue and earnings exposing the scale of the challenge. The latest job cuts feel like a last roll of the dice for Lutz Schüler, who needs to show a convincing path back to growth.”

He added: “The business has lost its strategic direction, and continued customer departures suggest it is struggling to rebuild trust while rivals give people compelling reasons to switch. Cutting costs can buy time, but it cannot repair those relationships or compensate for weak execution. Management must show customers why they should join and stay; otherwise, it risks shrinking the business without fixing what is driving people away. Shareholders need to take a hard look at these businesses and make even tougher choices about their future.”

- Ray Le Maistre, Editorial Director, TelecomTV