Virgin Media O2: Mixed results but outlook improving
VMO2’s Q3 results were mixed, with underlying revenue and EBITDA slightly improving (but still negative), subscriber momentum slightly improved, but customer service issues still apparent.
The company’s broadband momentum is clearly being significantly curtailed by altnet gains (and Openreach overbuild), with substantial network expansion resulting in anaemic subscriber growth.
A return to growth in 2025 certainly looks possible, but it will depend on customer service issues being resolved, and industry consolidation going VMO2’s way.
Related reports
Market revenue growth was just positive at 0.2% in Q2, as lower price increases were mitigated by some temporary ARPU gains.
Growth is likely to drop negative in the rest of year however, with continued weak volume growth compounded by temporary ARPU gains unwinding.
Pricing structures differ quite widely as regards landline offers and out-of-contract pricing, and all could benefit from adopting best practice, a marginal gain worth pursuing in a tough market.
Virgin Media O2: The struggle to grow subs
5 August 2024VMO2 survived the hammer blow of lower inflation-linked mobile price increases in Q2 with substantially unchanged revenue and EBITDA growth, helped by improving broadband ARPU
However, both mobile contract and broadband subs suffered declines, likely driven by issues with serving existing customers as well as attracting new ones, and these trends have to improve for the company to return to top and bottom line growth
Guidance implies that EBITDA growth will worsen in H2, but this would be good news in our view if it is driven by expenditure to support improved subscriber growth across broadband and mobile
VMO2/TTG merger talks (again) : Still tricky
12 February 2024According to press reports, VMO2 is in early stage discussions over buying TalkTalk’s consumer retail broadband business, but not its wholesale business, which may leave the latter in limbo.
There is strong industrial logic to the deal, with a sub-brand useful, and significant synergies from moving the TalkTalk base to VMO2’s network, with the latter gain at Openreach’s expense.
There would be major regulatory hurdles for the deal, with concerns on both a retail and wholesale level, and particularly the future of the altnets, with any deal likely having to protect this.
VMO2 and CityFibre merger talks: A tough sell
20 March 2023VMO2 and CityFibre are reportedly holding merger talks, which would bring together by far the two largest fibre builders competing with Openreach.
On a conventional altnet acquisition assessment, CityFibre is an attractive target given its scale, but a very expensive one at a full price given the degree of overlap.
The acquisition might still be attractive given the opportunity to take out a wholesale competitor but, for this same reason, regulatory clearance would be very tough.
With the O2/Virgin Media merger now approved, VodafoneZiggo in the Netherlands may hold clues to their likely approach to the market although their starting point is not quite the same and some lessons may have been learned.
We remain sceptical of the merits of discount-led convergence strategies. The pandemic, however, has eased the route to cross-selling and strengthened the case for convergent technologies.
Virgin Media’s network strategy will be key with significant risks from wholesaling their cable network and from expanding their footprint.
The press has reported on an imminent merger of O2 and Virgin Media (UK). This is not likely to be driven by the pursuit of revenue synergies as dis-synergies are more likely if the brands are merged.
Cost synergies are real, albeit a bit tangential. However, in a mature market even modest synergies are worth pursuing.
A full regulatory review may be required but approval is likely. Market impact is somewhat nuanced, with the benefit of a distracted competitor short-term and a larger but still rational operator ultimately.
Market revenue growth was just positive at 0.2% in Q2, as lower price increases were mitigated by some temporary ARPU gains.
Growth is likely to drop negative in the rest of year however, with continued weak volume growth compounded by temporary ARPU gains unwinding.
Pricing structures differ quite widely as regards landline offers and out-of-contract pricing, and all could benefit from adopting best practice, a marginal gain worth pursuing in a tough market.
Virgin Media O2: The struggle to grow subs
5 August 2024VMO2 survived the hammer blow of lower inflation-linked mobile price increases in Q2 with substantially unchanged revenue and EBITDA growth, helped by improving broadband ARPU
However, both mobile contract and broadband subs suffered declines, likely driven by issues with serving existing customers as well as attracting new ones, and these trends have to improve for the company to return to top and bottom line growth
Guidance implies that EBITDA growth will worsen in H2, but this would be good news in our view if it is driven by expenditure to support improved subscriber growth across broadband and mobile
VMO2/TTG merger talks (again) : Still tricky
12 February 2024According to press reports, VMO2 is in early stage discussions over buying TalkTalk’s consumer retail broadband business, but not its wholesale business, which may leave the latter in limbo.
There is strong industrial logic to the deal, with a sub-brand useful, and significant synergies from moving the TalkTalk base to VMO2’s network, with the latter gain at Openreach’s expense.
There would be major regulatory hurdles for the deal, with concerns on both a retail and wholesale level, and particularly the future of the altnets, with any deal likely having to protect this.
VMO2 and CityFibre merger talks: A tough sell
20 March 2023VMO2 and CityFibre are reportedly holding merger talks, which would bring together by far the two largest fibre builders competing with Openreach.
On a conventional altnet acquisition assessment, CityFibre is an attractive target given its scale, but a very expensive one at a full price given the degree of overlap.
The acquisition might still be attractive given the opportunity to take out a wholesale competitor but, for this same reason, regulatory clearance would be very tough.
With the O2/Virgin Media merger now approved, VodafoneZiggo in the Netherlands may hold clues to their likely approach to the market although their starting point is not quite the same and some lessons may have been learned.
We remain sceptical of the merits of discount-led convergence strategies. The pandemic, however, has eased the route to cross-selling and strengthened the case for convergent technologies.
Virgin Media’s network strategy will be key with significant risks from wholesaling their cable network and from expanding their footprint.
The press has reported on an imminent merger of O2 and Virgin Media (UK). This is not likely to be driven by the pursuit of revenue synergies as dis-synergies are more likely if the brands are merged.
Cost synergies are real, albeit a bit tangential. However, in a mature market even modest synergies are worth pursuing.
A full regulatory review may be required but approval is likely. Market impact is somewhat nuanced, with the benefit of a distracted competitor short-term and a larger but still rational operator ultimately.