By Paul Sandle
LONDON, Nov 3 (Reuters) – Virgin Media O2 is set to cut thousands of jobs and scale back its fibre ambitions as the highly indebted group seeks to increase profitability in Britain’s fiercely competitive broadband and mobile markets.
The telecoms operator, jointly owned by Liberty Global and Telefonica, is being squeezed by the roll-out of rival BT’s national fibre network and scores of small “alt-nets” offering cheaper, faster connections.
Virgin Media O2, which employs 15,000 people, said on Tuesday it would save £800 million ($1.07 billion) by 2029, partly by cutting 30% of its wage bill, mostly in non-customer-facing roles.
It carries £22 billion of debt, equivalent to 5.6 times its annualised third-quarter core earnings.
The company said it was in talks about using a rival’s network to expand beyond its own footprint, which would mean piggybacking on BT’s national Openreach network.
This is already used by providers such as Sky and Vodafone, as well as BT’s own consumer and business services.
‘TOUGH BUT NECESSARY’
CEO Lutz Schüler said the changes were tough but necessary.
“Given the market conditions we face, the regulatory backdrop in fibre and the technological changes sweeping across all areas of the economy, standing still and doing what we’ve always done is not an option,” he said.
Virgin Media O2’s latest results highlighted the competitive pressure, with a loss of 23,300 fixed-line customers in the third quarter, taking its total to 5.5 million.
Total revenue fell 5.7% to £2.4 billion and adjusted core earnings dropped 2.6% to £995 million.
Virgin Media O2 and its nexfibre partner have full-fibre coverage reaching 9.4 million premises. The company had planned to upgrade the rest of its cable network to fibre and expand its footprint through the acquisition of Netomnia, one of the largest altnets.
But Britain’s competition regulator opposed the deal last month, a decision Liberty Global said was a “wake-up call”.
“Never did we anticipate that this transaction with Netomnia would encounter such fierce resistance,” Liberty Global CEO Mike Fries said after the parent group published results on Tuesday.
Nexfibre, a joint venture between Virgin Media O2’s owners and investment firm InfraVia, plans to challenge the regulator’s reasoning.
Fries said the regulator’s move had to some degree pushed Virgin Media into halting investment.
In its assessment, the regulator had assumed Virgin Media O2 would continue investing in fibre even without the Netomnia deal.
Fries also criticised the government’s intervention to accelerate approval for BT to acquire TalkTalk, an asset he said Virgin Media and other companies had been interested in buying.
Virgin Media O2 said market economics did not support “three overlapping fibre networks” and it would instead upgrade its existing cable network, which uses older technology, to offer 2Gbps services to the majority of customers next year.
“Where any future fibre investment makes strategic sense, it will be supported off-balance sheet and only in non-altnet areas,” it said.
It said it was “exploring wholesale arrangements to support the expansion of its services to offnet areas not covered by Virgin Media O2 or nexfibre’s networks”.
($1 = 0.7460 pounds)
(Reporting by Paul Sandle; Editing by Kate Holton, Alexander Smith and Barbara Lewis)
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