Virgin Media O2 halts further fibre upgrades and plans £800 million of yearly savings

Virgin Media O2 (VMO2), the UK telecoms group owned jointly by Liberty Global and Telefónica, said on Tuesday, November 3, that it will halt further fibre upgrades and cut costs by about £800 million a year by 2029, according to its press release. Part of the saving comes from a smaller workforce.

The company said the full strategic plan will come around the time of its full-year results. The release sets out the direction only.

Where the £800 million comes from

VMO2 expects annual cost savings of about £800 million by 2029, with about £400 million delivered in 2027. Of the 2029 figure, about £300 million is expected to come from a smaller workforce, which the company equates to roughly 30% of its total people costs over the next two years.

The majority of the reduction is expected in non-customer-facing roles, the release says. It does not give a number of jobs. It adds that further reductions across the wider business are proposals subject to consultation, and that senior leadership roles have already been cut since the summer.

The rest of the savings are to come from fewer contractors, simpler supplier relationships and a review of technology licences, and from greater use of AI tools in customer service, network planning and fault management.

Fibre upgrades stop, and the cable network stays

On the fixed network, the company said it will halt investment in further fibre upgrades beyond its existing commitments to partners. It said market economics do not support three overlapping fibre networks.

Instead, VMO2 plans a low-cost upgrade to its existing hybrid fibre-coaxial (HFC) cable network to bring 2Gbps services to the majority of the network in 2027. Any future fibre investment would be supported off-balance sheet and only in areas without a smaller rival fibre network, the so-called non-altnet areas.

On mobile, the company said it will keep investing in network reliability, 5G+ and a satellite service, and in the spectrum it acquired, which would take its share to about 30%.

What the company says it is optimizing for

The release says the plan will focus on operating free cash flow, margin improvement and a reduction in leverage. It describes the backdrop as a tough macroeconomic climate, an intensely competitive and shrinking broadband market and a regulatory direction in fibre that does not reflect economic reality.

In business services, O2 Business is targeting about £70 million of pre-tax annual run-rate synergies by 2030. In consumer, each brand is to get a more clearly defined role and a dedicated commercial leader.

Chief Executive Lutz Schüler said in the release that "standing still and doing what we've always done is not an option". He added that many of the decisions are tough but necessary.

The company cited more than £10 billion invested in the UK in the first five years of the merger of the two businesses.

A cost plan that arrives before the strategy

We think the order of events is the point: VMO2 has announced where it will cut and what it will stop funding before it has published what it will build. For a business judged on where it puts its money, halting fibre upgrades is the more consequential choice than the headcount, because it fixes the network's capital spending for years and rests on cable keeping its speed advantage.

Our reading is that the plan puts cash generation and lower leverage ahead of growth. The opportunity is a leaner company with a clearer set of priorities. The threat is that a shrinking broadband market, which the company itself describes, keeps losing customers to rivals that are laying fibre.

We expect the full-year update to show whether savings of this size are enough, and we would change that view if the company gives figures that show the savings being spent back on customer acquisition. We would weigh the leverage target and the 2027 cable upgrade first.

The view in this final section is FinanceInTime's editorial opinion, for information only. It is not investment, tax, legal or other advice, and it does not take your circumstances into account. Forecasts are uncertain and past results do not guarantee future ones.