(Source: Kristoffer Tripplaar/Alamy Stock Photo)

Virgin Media O2 (VMO2) can count on support from parent Telefónica as it works through a major cost-cutting program and deals with a potential regulatory setback for fiber consolidation in the UK, according to management comments during the Spanish operator's third quarter earnings call today.

The operator remains "fully committed" to the VMO2 joint venture and is "helping" it in its recently announced restructuring, said Juan Azcue, chief financial officer at Telefónica. But he added that support does not include funding to increase its stake in the JV, which is equally owned by Telefónica and Liberty Global.

"Will we be putting equity back into VMO2? No, we won't," he said.

VMO2 reported third quarter results last week along with plans to cut spending by £800 million (US$1.1 billion) a year by 2029, including a 30% reduction in workforce costs and a halt to fiber upgrades beyond existing commitments. The carrier's broadband investments will be limited to upgrading its cable network and some possible "off-balance sheet" builds in "non-altnet areas," referring to rival alternative fiber network operators.

The restructuring follows a provisional decision from the UK's Competition and Markets Authority (CMA) that expressed concerns about – but did not block – Nexfibre's proposed acquisition of Netomnia. VMO2 parents Liberty Global and Telefónica own 50% of Nexfibre and InfraVia Capital Partners owns the other half.

Telefónica Chief Operating Officer Emilio Gayo added his voice to the chorus of dismay and disagreement with the CMA's initial report.

"We remain fully committed to the acquisition. We fundamentally disagree with the CMA's interim report. We believe the report is flawed, with conclusions and counterfactuals that do not reflect the commercial and financial reality of the UK market," he said.

He pointed to recent developments that show the CMA's position does not add up, including BT's acquisition of TalkTalk, "Cityfibre's uncertain debt restructuring process," and VMO2's fiber upgrades announcement.

VMO2 is also reviewing shareholder dividend payments and will provide an update on the new strategic plan and guidance with its full year results in January and when it "knows the outcome of the Netomnia transaction," he added.

2026 looks a bit brighter for the group

VMO2's troubles aside, Telefónica raised guidance for the year across several metrics, including adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and free cash flow. It also boasted debt reduction of €1.6 billion ($1.7 billion), which was the biggest drop for a nine-month period since 2021. Although its debt pile remains a whopping €25 billion ($27 billion).

But full-year revenue growth expectation was lowered from between 1.5%-2.5%, per previous guidance, to 1%-1.5%. Gayo said the downgrade was based mainly "on handset sales performance," although he noted service revenue "continued to perform very solidly." The carrier is aiming for around 1.5% service revenue growth in 2026.

In Q3, group revenue grew 2.2% in constant currency terms to €8.4 billion ($9.2 billion) with service revenue up 1.8% and handset sales up 7.4%.

Adjusted EBITDA growth of 2.8% to €3 billion ($3.1 billion) was attributed to the carrier's efforts to simplify its operating model and ongoing efficiencies.

Core markets snapshot

Across its three other core markets – Spain, Brazil and Germany – performance was mixed.

In Spain, which accounts for 40% of the telco's revenue and earnings, service revenue grew 2.6% thanks to net consumer subscriber additions across broadband, mobile and TV services as well as B2B services. Fiber penetration was 31% in the quarter.

In Brazil, Vivo added 900,000 mobile contract customers, up 6% year-over-year, while churn decreased to "historically low" 1%. The carrier expanded fiber to 32.4 million premises and reported 8.4 million fiber connections, bringing the penetration rate to 26%.

In Germany, which delivered 23% of revenue and 20% of earnings, the troubled Telefónica Deutschland is showing signs of improvement after prolonged restructuring and cost reductions, including job cuts and store closures. More recently, it said it plans to sell two of its contact centers that employ 430 people to business outsourcing specialist TP (previously known as Teleperformance), effective from the start of next year.

Revenue in Germany declined by only 2.9% in Q3, which is better than the 6.6% fall in the same period last year and much improved from the 11% drop recorded in the previous quarter. The carrier also noted that headwinds from losing a major wholesale MVNO customer (1&1) are starting to ease.

Given the changes in Germany, Gayo said the operating business is "laying the foundation for a return to profitable growth in 2027."

With Germany moving closer to being out of the woods, it looks like it's VMO2's turn to be the problem child of the group.