Virgin Media O2 lays out £800m cost-cutting measures

Virgin Media O2 CEO, Lutz Schüler, has set out the direction for the telco’s next chapter with an outline of the company’s upcoming strategic plan and a series of cost reduction measures. The company announcement also confirmed reports of major job cuts on the horizon.

The strategic plan, which will cover Virgin Media O2’s consumer, B2B and wholesale businesses and its fixed and mobile networks, will focus on three priorities: putting customers first; concentrating resources and investment on fewer, larger opportunities; and creating a leaner organisation. Financially, this will translate to a focus on operating free cash flow generation, margin improvement and a reduction in leverage over the coming years, said the company.

Virgin Media O2 said that it expects to deliver cost savings at an annual run-rate of approximately £800 million (€715.5m) by 2029, with around £400 million delivered in 2027. Approximately £300 million of the 2029 run-rate saving is expected to come from a reduction in the size of the workforce, which equates to roughly 30 per cent of the company’s total people costs over the next two years, with the majority of the reduction coming from non-customer facing roles.  

Organisational changes are already underway with a significant reduction of senior leadership roles since the summer. This includes Executive Committee changes and the bringing together of the previous commercial and operations areas of the business under Consumer CEO, Lyssa McGowan. Further reductions will occur across the wider business, with proposals subject to consultation. Conversations with those impacted will take place fairly and respectfully and Union representatives will continue to be briefed as these plans develop. 

Other significant cost measures will include reducing the use of contractors, simplifying supplier relationships and supply chain and reviewing technology licences. The company also expects a greater use of AI tools and digital channels to drive efficiency, productivity and better customer experience. This includes in customer service, building on the recently announced AI partnership with Sierra; network planning and fault management; and the personalisation of commercial offers. 

Schüler commented: “The direction we’re setting today paves the way for the next chapter of Virgin Media O2: a company that will be leaner, clearer on priorities and faster in delivery, with brilliant brands and an unwavering focus to get back to what really makes a difference to our customers. 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 and while many of these decisions are tough, they are necessary for our future success and growth. While we will give a fuller update on the new strategic plan in the coming months, we are already progressing and making difficult decisions to prioritise investments and reduce costs which includes the size of our workforce. This is not something I take lightly but my commitment to our people is that for those leaving we will treat them fairly and with respect, and for those staying we will work differently, but as one team, to get back to winning again. Virgin Media O2 must evolve, and the action needed to make that happen starts now.”

Meanwhile, Q3 revenue at Virgin Media O2 dropped 5.7 per cent to £2.4 billion, with service revenue down 3.5 per cent to £2 billion and adjusted EBITDA falling by 2.6 per cent to £995 million. The comparisons are adjusted for the Daisy transaction.

Consumer fixed-line customers decreased by 23,300 to 5.5 million. Mobile contract connections increased by 31,700 to 24.4 million, whilst consumer mobile contract connections fell by 7,800 and consumer contract average revenue per user grew by 2 per cent.

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