Virgin Media O2: Slowdown into 2026

VMO2/nexfibre has agreed to buy Netomnia, in a complex multi-party deal involving additional wholesale deal components between VMO2 and nexfibre which will leave nexfibre wholesaling 8 million premises to VMO2, or c.40% of VMO2’s overall footprint.

The purchasers are hopeful of an easy regulatory clearance, but we fear the process may be more protracted given the high overlap and removal of a major competitor.

The impact on VMO2 and other incumbent players is prima facie positive, given that it takes out a major subscriber gainer, but we fear that it will be structurally unhelpful, with the high price encouraging other altnets to continue to disrupt in the hope of a similar take-out.
 

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.

The expected service revenue boost from in-contract price increases failed to materialize this quarter, nullifying the upside surprise last quarter.

Traffic growth picked up again to 17%, lending further weight to the view that at least some of the recent sharp slowdown was somewhat one-off in nature.

Government statistics imply steep mobile price inflation while the opposite is true—which may help to diffuse the current furore over in-contract price increases.