Virgin Media O2 - It's tough out there
VMO2’s fixed business faced significant pressure in Q3, with ARPU declining by 1% in spite of an in-contract price-increase boost, and there is evidence of competitive intensity worsening since then.
The completion of Telefónica’s strategic review provides some clarity on VMO2’s priorities, with ownership changes at VMO2 and a NetCo sale unlikely.
Uncertainty around timing of altnet M&A and other opportunities for VMO2 is creating a lull in its growth profile, but there is reason to believe that clarity on at least some fronts will emerge fairly soon.
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VMO2 had a solid Q2 in financial terms, with revenue growth dipping but not by as much as we had expected, and EBITDA growth improving thanks to strong cost control
Consumer fixed is however continuing to deteriorate under altnet pressure, countered by mobile performing better than expected, with continuing weak subscriber numbers across both
Meeting 2025 full year financial guidance is looking more likely after a robust H1, but the trajectory thereafter depends heavily on how the altnet sector develops, a factor over which VMO2 has limited control now that NetCo has been cancelled
Better momentum, and in prospect: UK mobile market in Q2 2025
1 September 2025Service revenues were flat this quarter, pointing to strong underlying performance in spite of the drag from changing in-contract price increases and subscriber decline.
Traffic growth has picked up to 15% over the past couple of quarters, suggesting that at least some of the recent sharp slowdown was somewhat one-off in nature.
The outlook for revenue growth is positive, particularly thanks to BT/EE leading the way on ramping in-contract price increases, but there are also inherent risks in such moves.
Altnets in the UK: Consolidation endgame
26 June 2025The largest UK altnets are now all at or close to EBITDA positive, but still heavily cashflow negative even pre-interest costs and with paused builds, due to various below-the-line cash costs requiring continuous funding. EBITDA margins of as much as 35%+ are required to actually be cashflow breakeven.
Altnet economics are still challenging even if debts are fully written off, with a payback of more than 5 years on customer acquisition and connection costs alone.
The consolidation endgame is increasingly imminent, with the outcome likely to be a mix of CityFibre/VMO2 acquisitions, stand-alone niche players continuing, and abandoned assets, with the outcome for the rest of the sector more benign under any scenario than current trends.
Whilst we remain sceptical of the churn reduction benefits of fixed/mobile convergence, the pandemic and a more astute approach from the operators is enhancing the case for it in the UK.
Creating the impression of a giveaway whilst minimizing the effective discount is key, as is extracting any loyalty and cost benefits.
Even if well executed, any upsides are likely to be modest. Operators are right to keep discounts to a minimum and to avoid M&A premia predicated on fixed/mobile convergence synergies.
VMO2 had a solid Q2 in financial terms, with revenue growth dipping but not by as much as we had expected, and EBITDA growth improving thanks to strong cost control
Consumer fixed is however continuing to deteriorate under altnet pressure, countered by mobile performing better than expected, with continuing weak subscriber numbers across both
Meeting 2025 full year financial guidance is looking more likely after a robust H1, but the trajectory thereafter depends heavily on how the altnet sector develops, a factor over which VMO2 has limited control now that NetCo has been cancelled
Better momentum, and in prospect: UK mobile market in Q2 2025
1 September 2025Service revenues were flat this quarter, pointing to strong underlying performance in spite of the drag from changing in-contract price increases and subscriber decline.
Traffic growth has picked up to 15% over the past couple of quarters, suggesting that at least some of the recent sharp slowdown was somewhat one-off in nature.
The outlook for revenue growth is positive, particularly thanks to BT/EE leading the way on ramping in-contract price increases, but there are also inherent risks in such moves.Altnets in the UK: Consolidation endgame
26 June 2025The largest UK altnets are now all at or close to EBITDA positive, but still heavily cashflow negative even pre-interest costs and with paused builds, due to various below-the-line cash costs requiring continuous funding. EBITDA margins of as much as 35%+ are required to actually be cashflow breakeven.
Altnet economics are still challenging even if debts are fully written off, with a payback of more than 5 years on customer acquisition and connection costs alone.
The consolidation endgame is increasingly imminent, with the outcome likely to be a mix of CityFibre/VMO2 acquisitions, stand-alone niche players continuing, and abandoned assets, with the outcome for the rest of the sector more benign under any scenario than current trends.
Whilst we remain sceptical of the churn reduction benefits of fixed/mobile convergence, the pandemic and a more astute approach from the operators is enhancing the case for it in the UK.
Creating the impression of a giveaway whilst minimizing the effective discount is key, as is extracting any loyalty and cost benefits.
Even if well executed, any upsides are likely to be modest. Operators are right to keep discounts to a minimum and to avoid M&A premia predicated on fixed/mobile convergence synergies.