Virgin Media O2 announces £800m cost-cutting plan with major workforce reductions

Virgin Media O2 is preparing major job cuts as part of a saving £800 million a year by 2029, with £300 million of the savings coming from reductions in head count.

Chief executive Lutz Schüler announced the plans today (November 3), warning that the company must become leaner and more efficient in response to intense competition, a shrinking broadband market and rising operating costs.

The company expects to achieve around £400 million in annualised savings during 2027, rising to £800 million by 2029.

Around £300 million of the total savings will come from workforce reductions over the next two years, equivalent to approximately 30 per cent of Virgin Media O2’s current staff costs.

The company has not disclosed how many jobs will disappear, although it said most reductions would affect non-customer-facing positions.

Senior management cuts have already begun, with a significant reduction in leadership roles since the summer. Further redundancies will be subject to consultation with employees and trade unions.

In a major change of direction, Virgin Media O2 will stop investing in further fibre upgrades beyond commitments already made to its partners.

The company argues that the economics of the UK broadband market cannot support three competing fibre networks covering the same areas.

Instead, it will continue operating its existing hybrid fibre-coaxial (HFC) network, with a lower-cost upgrade planned to deliver broadband speeds of up to 2Gbps across most of the network during 2027.

Any future fibre investment will be financed off the company’s balance sheet and restricted to areas without alternative fibre networks.

Virgin Media O2 is also exploring wholesale agreements that would allow it to sell broadband services in areas outside its own network and that of nexfibre.

Mobile network investment continues

Despite the spending cuts, Virgin Media O2 says investment in its mobile network will continue, concentrating on coverage reliability and connection quality.

Priorities include expanding its 5G+ network, developing O2 Satellite services and deploying recently acquired spectrum, which has increased its share of UK mobile spectrum to approximately 30 per cent.

The company will also make greater use of its network-sharing agreement with Vodafone to reduce infrastructure costs.

In wholesale, Virgin Media O2 intends to maintain its position as a major network provider to MVNOs.

O2 Business will simplify its product range and streamline operations following its first year of integration.

The business division is targeting approximately £70 million in annual pre-tax synergies by 2030, alongside improved profit margins and faster commercial execution.

On the consumer side, Virgin Media O2 plans to give its brands more clearly defined market positions, simplify tariffs and products, and introduce measures intended to improve customer loyalty and reduce churn.

AI to replace manual processes

Artificial intelligence will play a greater role in the company’s cost-reduction programme.

Virgin Media O2 plans to expand the use of AI in customer service, network planning, fault management and personalised marketing.

This includes its recently announced partnership with AI customer-service specialist Sierra.

Other savings will come from reducing contractor numbers, consolidating suppliers, simplifying supply chains and reviewing software licensing costs.

‘Standing still is not an option’

Schüler acknowledged that the restructuring would involve difficult decisions, including redundancies.

“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.

“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.”

He added that employees leaving the business would be treated fairly and respectfully.

The restructuring marks a significant shift in priorities for Virgin Media O2, which was formed through the merger of Virgin Media and O2 in 2021.

The company says it has invested more than £10 billion in the UK since the merger, but its new strategy places greater emphasis on cash generation, profitability and reducing debt rather than network expansion.

Further details of the strategic plan will be announced around the company’s full-year results.