Telefónica has reaffirmed its backing for Virgin Media O2 (VMO2), its joint venture in the United Kingdom, as the carrier navigates a demanding restructuring initiative and regulatory hurdles surrounding fiber network consolidation. Executives from the Spanish telecommunications giant addressed the strategic partnership during a third-quarter earnings call, providing clarity on the nature of their support while outlining the broader financial health and operational performance of the multinational group.
Juan Azcue, chief financial officer at Telefónica, told analysts and investors that the company remains completely committed to the VMO2 joint venture, which is equally owned by Telefónica and Liberty Global. He noted that the parent company is actively assisting VMO2 with its recently announced organizational overhaul and cost-reduction targets. However, Azcue made it explicitly clear that this operational backing does not extend to supplying new equity to increase Telefónica’s ownership stake in the enterprise.
When asked directly if the Spanish operator would inject further capital into the British joint venture, Azcue answered in the negative, emphasizing that no additional equity would be put back into VMO2.
The reassurance from leadership comes in the wake of VMO2’s third-quarter earnings release, which outlined an aggressive financial turnaround strategy. The UK carrier announced plans to slash expenditures by £800 million (approximately $1.1 billion) annually by 2029. This comprehensive savings program involves a dramatic 30% reduction in workforce costs and a decision to halt broader fiber build-out projects beyond previously established commitments. Moving forward, VMO2’s broadband investment strategy will concentrate primarily on upgrading its existing cable infrastructure, supplemented by select off-balance-sheet builds in areas not served by alternative fiber network operators, commonly known as altnets.
The sweeping restructuring at VMO2 follows a contentious regulatory development involving Nexfibre, a wholesale fiber joint venture owned equally by Telefónica, Liberty Global, and infrastructure investor InfraVia Capital Partners. The UK’s Competition and Markets Authority (CMA) issued a provisional decision raising competitive concerns regarding Nexfibre’s proposed acquisition of Netomnia. While the regulatory body did not outright block the transaction in its interim findings, the intervention has injected significant uncertainty into the fiber consolidation landscape in Britain.
Emilio Gayo, chief operating officer at Telefónica, joined a chorus of industry voices expressing strong disagreement with the CMA’s preliminary assessment. Gayo did not mince words when discussing the regulatory stance, describing the interim report as fundamentally flawed. He argued that the conclusions and counterfactual assumptions drawn by the CMA fail to reflect the genuine commercial and financial realities currently shaping the UK telecommunications market.
To support his critique, Gayo pointed to several recent market events that he believes expose the inconsistencies within the CMA’s position. These developments include BT’s strategic acquisition of TalkTalk, Cityfibre’s ongoing and complex debt restructuring process, and VMO2’s own recent announcement regarding the scaling back of its fiber upgrades. In light of these pressures, Gayo noted that VMO2 is actively reviewing its shareholder dividend payouts. Comprehensive updates regarding the joint venture’s new strategic plan and financial guidance will be provided alongside full-year results in January, and once the definitive outcome of the Netomnia transaction becomes clear.
2026 looks a bit brighter for the group
While VMO2 grapples with domestic cost pressures and regulatory friction in the UK, the broader Telefónica group presented a much more resilient financial picture during its third-quarter earnings presentation. Buoyed by solid operational execution across several territories, the Spanish operator upgraded its full-year guidance for several
key performance metrics, including adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), as well as free cash flow generation.
Telefónica also highlighted significant progress in deleveraging its balance sheet. The company reported a debt reduction of €1.6 billion ($1.7 billion) during the first nine months of the year, marking the largest nine-month debt drop the group has recorded since 2021. Despite this substantial reduction, the operator’s total debt pile remains substantial at approximately €25 billion ($27 billion).
On the revenue front, however, expectations for full-year growth were adjusted downward. Telefónica narrowed its projected revenue growth rate from the previous guidance range of 1.5% to 2.5%, down to a range of 1% to 1.5%. Gayo explained that this adjustment was primarily driven by handset sales performance, noting simultaneously that core service revenue continued to demonstrate strong resilience. The carrier has set its sights on achieving approximately 1.5% service revenue growth heading into 2026.
During the third quarter, group revenue expanded by 2.2% in constant currency terms, reaching €8.4 billion ($9.2 billion). Within this total, service revenue climbed 1.8%, while handset sales posted a stronger 7.4% increase. Furthermore, adjusted EBITDA grew by 2.8% to reach €3 billion ($3.1 billion), a positive trend that management attributed directly to ongoing corporate efficiency initiatives and efforts to simplify the group’s overall operating model.
Core markets snapshot
Performance across Telefónica’s three other primary operating markets—Spain, Brazil, and Germany—proved to be characteristically mixed, reflecting localized market dynamics and unique regulatory environments.
In Spain, which continues to anchor the group by generating approximately 40% of its total revenue and earnings, business momentum remained steady. Service revenue advanced by 2.6%, bolstered by net consumer additions across broadband, mobile, and television portfolios, alongside solid demand for business-to-business (B2B) services. Fiber penetration within the Spanish footprint reached 31% during the quarter.
Across the Atlantic, Telefónica’s Brazilian subsidiary, Vivo, delivered another robust operational update. The business added 900,000 mobile contract customers, representing a 6% increase compared to the same period last year. At the same time, customer churn dropped to a historically low level of 1%. Vivo also extended its fiber footprint to cover 32.4 million premises, reporting 8.4 million active fiber connections, which translates to a penetration rate of 26%.
In Germany, which accounts for roughly 23% of group revenue and 20% of earnings, Telefónica Deutschland is finally showing tangible signs of recovery following a prolonged period of painful restructuring and cost reduction measures. The German unit has previously implemented extensive job cuts and retail store closures to streamline operations. Continuing this trajectory, the company recently announced plans to divest two of its customer contact centers—employing a total of 430 staff members—to business process outsourcing specialist TP, formerly known as Teleperformance, with the transaction scheduled to take effect at the beginning of next year.
Financial metrics from Germany underscored this gradual turnaround. Revenue in the German market declined by just 2.9% in the third quarter. While still negative, this represents a notable improvement over the 6.6% drop recorded during the same period in the previous year and a dramatic recovery from the 11% contraction reported in the prior quarter. Management also observed that the financial headwinds caused by the loss of a major wholesale mobile virtual network operator customer, 1&1, are beginning to subside.
Reflecting on the turnaround efforts in Central Europe, Gayo stated that the German operating business is successfully laying the necessary groundwork to return to sustainable, profitable growth by 2027. With Germany steadily emerging from its transitional struggles, attention within the multinational group has increasingly shifted toward VMO2, which now effectively occupies the role of the group’s primary operational challenge.
