Subscriptions dip, jobs to be cut, but Virgin Media O2 sees positives in Q2 | Computer Weekly

Less than two weeks ago, UK communications regulator Ofcom opened an investigation into Virgin Media O2 (VMO2) following complaints from customers that the company was making it difficult for them to cancel services, yet as it published its second-quarter results, the operator revealed cancellations were indeed taking place and that it was embarking on a job-cutting programme, taking some of the shine off a three-month period in which it has shown growth in revenue and EBITDA.

In its results for the second quarter of its financial year ended 30 June 2023, VMO2 revealed £2.7bn in adjusted revenue, up 6.2% on an annual basis, driving transaction-adjusted EBITDA of £1bn, up 4.6% compared with the same period a year ago. The company also saw a  year-on-year 1.9% rise in transaction-adjusted EBITDA – capex to £467m.

VMO2’s total fixed customer base stood at 5.8 million, but with a loss of 24,700 customers in the second quarter. VMO2 attributed this to customers having a right to cancel due to price rise notifications, which is said was expected. The company also lost 15,300 broadband connections in the same quarter.

Virgin Media O2’s total mobile connections – contract and prepaid – stood at 24 million. The provider’s mobile contract base remained stable at 16.1 million, with a slight net reduction of 1,500 in the quarter. O2’s monthly consumer contract churn remained low at 0.9%, and 1.5 million customers took one of the company’s converged fixed-mobile Volt bundles. 5G mobile was available in more than 2,800 towns and cities, and is on track to reach 50% of the UK population in 2023.

One of the highlights for the company that emerged at the end of the quarter was the news that after initiating trials of the advanced optical networking technology on its live full-fibre infrastructure towards the end of 2022, VMO2 was starting to sell services based on XGS-PON through the nexfibre next-generation fibre joint venture, for which VMO2 is the build supplier and wholesale tenant.

The quarter also saw more than £500m invested, with £2bn expected to be invested across 2023. The company’s total fixed-line premises serviceable was 16.4 million by the end of June 2023 – 58% of total UK households – with network expansion accelerated to see 175,500 premises built in the second quarter. This was predominantly on behalf of nexfibre.

This meant that at the end of the quarter, VMO2’s full-fibre footprint stood at three million homes. The company said it would increase this figure to around four million by the end of 2023, offering gigabit speeds of up to 1.1Gbps across the entire reach of the VMO2 infrastructure.

Assessing the second-quarter results, Virgin Media O2 CEO Lutz Schüler noted that the company was having to navigate a tough economic climate, but that it had a clear long-term strategy to continue to deliver for customers. “Amidst higher costs, rising usage and continued investment, we executed necessary price increases in line with our expectations, with this starting to flow through to our Q2 revenue and EBITDA growth,” he remarked.

“Demand for our award-winning connectivity remains, and our significant network investments and service improvements ensure we can meet all customer needs today while preparing for the decades ahead,” Schüler added. “For the rest of the year, we remain focused on building commercial momentum, realising the synergies of the joint venture and future-proofing our networks.”

Yet as it was publishing its second-quarter results, VMO2 also announced that, just like its peers and rivals, it was embarking on a staff reduction programme that will see 2,000 jobs cut over the course of the year.

Commenting on the cuts and what it means for the industry at large, Paolo Pescatore, founder and TMT analyst at PP Foresight, said this was not good news for UK plc at large, and that the industry could expect to see further cost-cutting measures.

“Ultimately, it’s about efficiencies. All telcos are struggling to generate new forms of revenue. Margins continue to be squeezed due to the roll-out of next-generation networks and people are reluctant to spend more on connectivity. Furthermore, the [VMO2] entity is still going through the integration process of two companies coming together as one,” he said.

“Unfortunately, it feels like job cuts are becoming the norm, akin to annual price rises. For all providers, it’s an opportune moment to focus on efficiencies. This is only part of a successful long-term strategy. There should be a greater focus on driving revenues as well. We’ve seen a correction in the workforce across all sectors, most notably big tech. We are now starting to see this transcend into other verticals.”