Prepared remarks
Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Liberty Global's Second Quarter 2025 Investor Call. This call and the associated webcast are property of Liberty Global, and any redistribution, retransmission, or rebroadcast of this call or webcast in any form without expressed written consent of Liberty Global is strictly prohibited. Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at libertyglobal.com. As for today's formal presentation, instructions will be given for a question and answer session. Page 2 of the slides details the company's safe harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the company's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical facts.
These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed in Liberty Global's filings with the Securities and Exchange Commission, including its most recently filed Forms 10-Q and 10-K as amended. Liberty Global disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based. I would now like to turn the call over to Mr. Mike Fries.
Thank you, operator. Hello, everyone. We appreciate you joining us today for our second quarter results call. I hope your summer is off to a great start, wherever you may be. As you know, we aim to keep these calls fairly consistent, so I've got my key leadership team on here with me. Once Charlie and I finish with the prepared remarks, we'll dive right into your questions. We are referencing slides, and I'll start on Slide 3 with some highlights and key messages from the quarter. The first point should not surprise anyone on this call. Ultimately, this management team and the Board are fully focused on creating and delivering value for shareholders. We achieve this through three core platforms: Liberty Telecom, Liberty Growth, and Liberty Services. Starting with Liberty Telecom, our goal is to drive commercial momentum and unlock value for you, as demonstrated by our Swiss subsidiary, Sunrise.
I will return to how we might accomplish this at the end of my remarks, but let me first share some operational insights. Our markets remain highly competitive, with new entrants like Altnets in the U.K. and low-cost providers impacting both gross adds and churn. As a result, our subscriber results vary; some markets have seen improved churn and signs of growth, while others are under pressure regarding sales and net adds. Despite these difficulties, we are performing reasonably well financially, achieving revenue and EBITDA in line with our guidance expectations, assisted by price increases and strong ARPU results. It’s not surprising that every market is using similar strategies to boost commercial momentum, including fixed mobile convergence and flanker brands to support mobile sales, AI-driven retention and marketing tools to minimize churn, and speed upgrades and loyalty programs to enhance NPS and strengthen our customer base.
We are also dedicated to maintaining the highest quality networks wherever we operate, and our fiber and 5G upgrade plans are on track. We’ve acquired spectrum in the U.K., which will be very advantageous for us, and we recently extended our footprint in the Netherlands. Additionally, we are focused on monetizing these networks as opportunities arise, with both tower and fiber transactions planned for the latter half of the year to support growth and de-leveraging. Moving on to Liberty Growth, our strategy remains unchanged. Our portfolio is currently valued at $3.4 billion, which reflects a slight increase from Q1, primarily due to additional investments and favorable FX movements. This portfolio is highly concentrated, with the top six investments accounting for over 80% of its value, including three in media and two in infrastructure, alongside our tech portfolio. The goal going forward is clear.
We aim to rotate capital into higher return investments in sectors with favorable trends and, where suitable, use some of that capital for accretive transactions at Liberty Telecom, similar to what we did with Sunrise. Our guidance for the year is to sell assets totaling $500 million to $750 million—this target is achievable, but we will not compromise on price simply to meet a timeline. If it extends into Q1, that works too. On this note, we have exited our position in Vodafone, which contributed approximately 10% to 15% of our goal. I am happy to answer any questions about that. Now, a couple of updates. I am genuinely excited about Formula E's progress this season. Our London race last weekend concluded an extraordinary year. We recently announced an extension to our exclusive license with the FIA covering all electric single-seater racing through 2053. Thirty years is a significant duration in this sport, particularly with the evolving performance of these cars and the global growth in fan engagement, which now totals 400 million.
On Liberty Growth, our commitment to digital infrastructure is expanding through investments in businesses like AtlasEdge and the value from existing assets like EdgeConneX, a data center platform and one of our largest and most successful investments to date. I will conclude this slide with some comments on our service platforms and corporate operating model. It is important to highlight that analysts often undervalue these areas, affecting our stock price. I'll begin with Liberty Bloom, which offers a variety of business solutions for 36 enterprise customers, over a third of which are external to Liberty. This new division is set to exceed $100 million in revenue and generate positive EBITDA this year. I am enthusiastic about the growth trajectory at Bloom, which exemplifies how we are transforming corporate capabilities into valuable enterprises. Charlie's aim is to build a $1 billion company here, and I fully support that.
Our Liberty Tech platform has generated $475 million in revenue and has been increasing its profitability over the past few years through sophisticated outsourcing arrangements. We have kept you updated on these, but they allow our team to retain control over IP and product development while also reducing our service costs. There may be further opportunities for similar deals in the future. Additionally, we have been focused on our net corporate costs. Our guidance for the year was to spend just under $200 million, and we are now improving that guidance by at least $25 million as we begin to reshape our operating model. This is positive news, and we will keep you informed as the year progresses. We are confident in our ability to continue optimizing this number through revenue generation and strategic adjustments. At the end of the quarter, our cash balance was $1.9 billion. We repurchased about 3% of our shares, and depending on asset sales, we anticipate this cash figure to be higher by year-end.
With that background, I’ll elaborate on our telecom business before handing it over to Charlie for the numbers. Moving to Slide 4, we have some key updates for each operation, starting with Virgin Media O2. We are nearing the completion of our merger with Daisy, which will create a leading B2B entity in the U.K. and the second-largest solutions provider to small and medium enterprises, with GBP 1.4 billion in revenue and GBP 150 million in EBITDA. The synergies here are considerable, with a net present value of GBP 600 million, factoring in integration costs, based on a projected annual savings of around GBP 70 million by 2030. On the mobile side, VMO2 has recently finalized the purchase of 80 megahertz of spectrum from VodafoneThree following their merger, increasing our market spectrum share to 30%, which secures our competitive position in the mobile market for the long term. Lutz and his team are also implementing a customer service transformation plan, which has significantly reduced Virgin Media complaints year-over-year—a tremendous achievement.
They are also enhancing product offerings like data rollover on O2 premium plans and multi-SIM capabilities for the Volt proposition, so a lot is happening. Transitioning to VodafoneZiggo, we are beginning to see positive indicators due to management’s strategic changes in the market. On the M&A front, our Dutch tower sale is progressing well, with completion anticipated in the second half and proceeds likely used for de-leveraging. We also announced an agreement with Delta that adds access to another 600,000 homes in greenfield areas in the South, enabling us to operate nationally. In Belgium, we continue to advance our collaboration with Proximus on a fixed network-sharing deal, which is promising. Our launch of BASE over a year ago is performing well, unlocking 2 million greenfield homes in that region. After significant investment in 5G over the last three years, it is encouraging to see Telenet recognized by the government for its excellent 5G coverage in Belgium.
In Ireland, we are moving quickly towards completing our full fiber rollout, expecting 80% coverage by year-end and completion in the first half of next year. We lead the country in broadband speeds and recently launched Ireland's first 5-gigabit fiber broadband service. Importantly, we have added our third wholesale fiber customer in Ireland, bringing our utilization on the fiber network to 16%. Now, just three more slides before I pass it to Charlie. I want to provide more detail on two key strategic developments in the Benelux region, beginning in the Netherlands, where we previously discussed the management team's new strategy and operating plan for the Dutch market. This plan, outlined on Slide 5, consists of four main initiatives. First, we have implemented a more agile operating model, marked by streamlined processes and quicker decision-making, which has resulted in significant operational cost savings and a stronger competitive position against KPN.
Stephen has fostered a culture of success and pride within the organization, which is essential. The second initiative involves repositioning broadband pricing, which was enacted in April. This resulted in a 50% improvement in churn intent in May and June compared to April, supported by switching to a 24-month contract. Overall, it was vital to clarify our network strategy in the market, as analysts have wrongly critiqued our need to build fiber. Let me clarify that our HFC network in the Netherlands is currently robust and capable of delivering lightning-fast broadband speeds. We will maximize our current 1-gig speeds over the HFC infrastructure, roll out 2-gig speeds utilizing DOCSIS 3.1 technology, and accelerate our transition to DOCSIS 4.0, expecting 8-gig speeds by 2026. Notably, the costs associated with DOCSIS 4.0 and the 1.8-gig network upgrade are 90% lower than building a fiber network.
Lastly, the team is reinvesting in VodafoneZiggo's core strengths, particularly in our brands, loyalty programs, and FMC offerings, introducing initiatives like a new WiFi guarantee and a refreshed Vodafone brand. This should provide a clearer understanding of the organic initiatives the team is implementing, which give us optimism for 2026 and beyond in the Netherlands. Next, a brief update on Belgium regarding our discussions with Proximus to rationalize fixed networks. Proximus and Fiberklaar on one side and Telenet and our NetCo called Wyre have made significant strides towards an agreement to expedite fiber deployment across Flanders. Although this has required considerable time and effort, our teams have been collaborating closely with local regulators and we plan to launch a market test of our arrangement in September, which is promising. To simplify, there are 4.1 million homes in Flanders and Brussels, with roughly 1.4 million categorized as dense urban areas.
In those areas, Proximus and Wyre will continue to build fiber independently while competing. Meanwhile, in the remaining market, we will collaborate for the benefit of consumers. In medium-density areas containing 2 million homes, Wyre will construct 60% or 1.2 million of those homes and Proximus will build the remaining 40% or 800,000 fiber homes. Regardless of where we build, all parties will utilize the same infrastructure for delivering their services. In what is considered rural areas, Proximus will transition their customers to our existing HFC network. We are genuinely excited about this transaction, which enhances what is already a fantastic narrative in Belgium, with additional steps for value creation expected. Finally, the key message I want to convey today is that we are committed to creating and delivering value to shareholders. Before we spun off Sunrise eight months ago, it had a valuation of around 5.5 times EBITDA as part of Liberty Global.
Presently, as a public Swiss company, Sunrise is trading at 8 times EBITDA with an 8% dividend yield. Looking at it from a different perspective, prior to the spin-off, Sunrise accounted for about 20% of our proportionate EBITDA. Today, Sunrise's market cap surpasses that of Liberty Global, where the remaining 80% of our proportionate EBITDA resides, along with over $15 in cash and growth investments. There’s a notable disconnect here, and we plan to address it. You're likely wondering how we plan to continue unlocking value. The straightforward answer is to keep separating out the parts. We are actively working on how and when to divide the remaining operating assets of Liberty Global. The reasoning is simple: eliminating the conglomerate discount in our stock presents a significant opportunity. We have demonstrated our capability to achieve this and possess inherent advantages that others might not.
Options available to us include spin-offs, tracking stocks, IPOs, and more. On the right side of the slide, you can see our current portfolio of businesses and assets, including Sunrise, which belongs to all Liberty shareholders. We believe that, over time, each of these businesses can be tracked, spun off, or listed in various combinations. Now regarding timing, we believe we can finalize one or more of these transactions in the next 12 to 24 months. Rest assured, as we get closer to having definitive plans, we will keep you informed. It's also vital to note that these transactions are independent of any M&A activities, including our joint venture markets. The critical takeaway is that our strategy remains unchanged. Our goal is to leverage all options available to us to eliminate the discount on our stock, and I am confident we can accomplish this. Charlie, over to you.
Thanks, Mike. Moving on to our operating highlights slide, and starting with Virgin Media O2. In broadband, despite delivering our highest market share of gross adds during the quarter, net adds saw a similar decline to Q1, and this was driven by a continuation of higher churn due to the competitive pressures in the U.K. market, largely from the Altnets, as well as the impact of One Touch switching. Fixed ARPU was stable after four consecutive quarters of growth. In postpaid, the decline in net adds was primarily driven by lower value B2B disconnects in the quarter. But encouragingly, O2 postpaid churn fell year-over-year, and we continue to drive initiatives to improve performance going forward and see growing momentum on the giffgaff brand. We continued recent growth in mobile postpaid ARPU, supported by price adjustments, which were implemented from April. Moving to VodafoneZiggo. In broadband, despite the continued competitive fixed market dynamics, we saw encouraging early signs of the new strategy with a modest improvement in broadband net adds supported by lower churn through the quarter.
On fixed ARPU, despite the front book repricing impact starting to flow through, ARPU continues to have some support from the prior year price adjustments. Postpaid net adds were again impacted by B2B port outs, though it's worth noting that consumer net adds did grow modestly in the quarter. And mobile churn also improved, including the impact of our B brand, hollandsnieuwe. Turning to Telenet. We returned to broadband net add growth, supported by improving churn and some easing on the competitive front. We continue to gain momentum with BASE's fixed mobile convergent offering, including expansion in the south of Belgium. And we delivered strong fixed ARPU growth driven by the earlier implementation of the price adjustment across Telenet from April, which was compared to June of the prior year. Encouragingly, we saw positive postpaid net adds during the quarter, leveraging BASE to defend against the impact of Digi's launch in the market late last year.
However, Belgium mobile postpaid ARPU remains under pressure from the competitive environment, especially B brand price points in the market. Lastly, turning to Virgin Media, Ireland. Broadband performance was impacted by an intensified competitive environment, resulting in higher churn during the quarter. Now despite this, our growing wholesale traffic is acting as an offset and supporting strong fiber uptake. Fixed ARPU also remains under pressure due to the pricing environment. And Irish postpaid mobile saw an improvement in performance following the launch of new mobile offers in May. The next slide sets out a summary of the quarterly revenue and EBITDA performance in our key markets. VMO2 reported a modest revenue decline of 0.4% on a guidance basis in Q2, which was primarily driven by lower B2B fixed revenue, whilst overall fixed and mobile service revenue remained stable. VodafoneZiggo reported a revenue decline of 2.4% during the quarter, mainly driven by a decline in the fixed base and the impact of the front book repricing, which was partially offset by improved monetization of Ziggo Sport and the UEFA content.
Telenet reported a revenue increase of 0.6%, supported by growth in both cable subscriptions off the back of an earlier price adjustment and continued strong programming revenues. Moving to our Q2 adjusted EBITDA performance. VMO2's adjusted EBITDA grew 1.1% on a guidance basis, supported by lower year-on-year operating expenses. And VodafoneZiggo's adjusted EBITDA declined 0.1% in the quarter, driven by the fixed base decline and the impact of its new strategy and in particular, the repricing of its front book. Telenet's adjusted EBITDA grew 2.8%, supported by price adjustments and lower direct costs. The next slide provides an update on our key capital allocation metrics. Now starting from the top left, in the first half of the year, we saw cash flow generation in line with our expectations and with our full year guidance. As has been the case in previous years, we have limited cash distributions from the JVs in the first half, which tend to come in Q4.
Moving to the bottom left, I wanted to reinforce a number of midterm free cash flow drivers. Firstly, there's no expected material U.S. tax expenses at Liberty Corporate from 2026 with the U.S. transition tax now behind us, and that's been around $100 million a year annual headwind. As we noted earlier in the year, Telenet ServCo free cash flow is expected to turn positive from 2026 as 5G and digital CapEx spend falls away. Similarly, with significant progress made on the Irish fiber-to-the-home rollout, CapEx is expected to fall from 2026, driving free cash flow back into positive territory at Virgin Media Ireland. Turning to our cash walk at the top right. Our consolidated cash balance sits at $1.9 billion at the end of Q2, down modestly from our Q1 closing balance of $2.1 billion. We saw outflows in the quarter related to continued investments in the Liberty Growth portfolio and the execution of our share buyback program.
Moving to the Liberty Growth walk in the bottom right. The fair market value of our Liberty Growth portfolio increased by around $100 million during Q2 to reach $3.4 billion. This was primarily driven by the increase in dollar terms of our largely European currency-denominated investments as well as additional investments in EdgeConneX and Formula E. Additionally, the exit of our Vodafone collar position generated around $82 million in proceeds. Turning to our treasury update. We maintain a strong balance sheet position with our debt split equally between bank debt and bonds. We maintain a siloed and portable debt capital structure at our operating businesses, where the variable bank debt is fixed using independent swaps, allowing us to refinance the credit spreads on our near-term maturities, whilst also benefiting from the full term of the swaps. Across the OpCos, the cost of debt is around 4% to 5% with an average tenor of approximately five years.
Now in general, we look to manage our debt maturities so that there are no material refinancing commitments over the next 2 to 3 years. During the quarter, we remained very active, completing an $850 million private tap to extend the 2028 maturities of VMO2, and we also successfully completed just over $1.3 billion of debt financing for the Daisy acquisition by VMO2, which closed today. In aggregate, we've completed $5.5 billion of refinancings during 2025 at attractive spreads. We remain opportunistic and flexible in our financing approach, and we intend to continue to proactively push out existing maturities to maintain tenor. Turning to our guidance slide. We are improving guidance on two metrics. At Telenet, we're tightening our adjusted EBITDA guidance, which we now expect to be a low single-digit decline, which is an improvement and at the top end of our previous guidance range. And this has really been supported by a strong first half performance by the company.
The revised guidance continues to include the tough comparator coming up at Q3 due to the prior year having a EUR 17 million one-off deferred revenue benefit in Q3 of 2024. And at Liberty Services and Corporate, we're upgrading our adjusted EBITDA guidance to be around negative $175 million as opposed to $200 million. We are reconfirming all the remaining guidance metrics of VMO2, VodafoneZiggo, and Telenet.
Questions and answers
The conclusion of our prepared remarks for Q2, and I'd like to hand over to the operator for the questions and answers.
I'd like to ask about Telefónica's comments on the U.K. NetCo. So is this just not a good idea for one of the parties, and that's it? Or is it an idea to be debated further? Why do you think the idea has not landed in Madrid?
Thanks, Robert. Look, I think our partner has been pretty clear, and you can read into their remarks, they did their call the other day around their position on the ownership of networks, the financing of networks. And I'm not going to go back through that. But I would make this point, which is there are other ways to achieve some of the very same goals that they seem to be pursuing. So we have a great joint venture called nexfibre together with Infravia. Nexfibre is in the midst of building, has already built over 2 million fiber homes. It's well capitalized and represents a terrific vehicle for exploring Altnet consolidation, for example. There's a lot of strategic and fiscal cooperation that VMO2 can do with nexfibre. So I do see us playing a role in the consolidation, which was one of the main benefits of the NetCo project that we were exploring together. I think there is an open mind to playing a significant role in consolidation, just perhaps doing it through different vehicles and in a different manner. So as we get closer to having specific either transactions or structures to communicate, we will. But we have a very good dialogue on this front. I think there are many things about the NetCo strategy that Telefonica would agree with and other aspects they don't. And so as good partners, we'll work to find the areas of agreement and head forward. So that's the answer.
Got it, Mike. Is the HFC upgrade piece of the strategy still moving ahead?
Sure. We are upgrading HFC homes to fiber at a relatively strong clip with economics on those upgrades looking very similar. Remember, today, VMO2 has access to about 18.5 million homes, if you include the nexfibre homes in that number. And of those 18.5 million, over 7 million are already fiber. So there's an 18.5 million footprint that VMO2 markets to today, of which 7 million are already fiber. It's a combination of nexfibre and our own upgrades at VMO2. So we're already a very large player in the fiber business in the U.K., and I expect that we will continue to get larger.
Coming back to Slide #7, which is a helpful outline of the rationale you're putting forward for taking more corporate action. Firstly, if you could maybe just clarify when you talk about timing in the next 12 to 24 months, is that focused on the Liberty Telecom assets? Or could we see Liberty Growth and Liberty Services assets monetize in some way first before coming to the telecom assets? And then secondly, if I look at the telco businesses, and you correctly point out that Sunrise created a lot of value. I guess that asset has a relatively stable revenue and EBITDA growth profile, visibility on the network upgrades, and subsequent to your cash injection brought leverage down to 4.5x given that the leverage for VMO2 is if I just say going some way above that. And Telenet is in the midst of a big network upgrade at the moment, how many steps do we have to go through for each of these assets before they're in a position where they could be spun off in IPOs? And do you think that leverage or operational performance is the key thing you need to get in place before you take corporate activity on the Liberty Telecom assets?
Thank you for your questions. I’m pleased we have the opportunity to discuss this in detail. The timing is complex, and there are several issues we're navigating. Our legal and tax advisors have urged caution regarding our commitments and discussions due to the numerous variables involved. I want to clarify that I’m not being vague; I’m just being prudent. A timeframe of 12 to 24 months is realistic for one or more of these initiatives to materialize. As you noted, this could include assets from the growth portfolio or the telecom portfolio in various combinations, based on what makes the most sense. The key takeaway is that we possess the flexibility to identify which businesses and assets provide the most promising and valuable opportunities. Regarding your question about growth versus leverage, I believe both are significant. As you know, Sunrise is not a high-growth business but it is very profitable, committed to a popular dividend strategy.
An 8% tax-free dividend yield is quite attractive in a market with 0% interest rates, and this approach has worked well. On the operational side, it’s less about growth in EBITDA revenue and more about generating free cash. It's important to have a dividend strategy with the telecom asset that supports long-term investor interest. Most of our larger assets indeed generate free cash. Your point about leverage is valid as well. We have managed to reduce Sunrise's leverage down to 4.5x. Currently, it seems investors don’t require further deleveraging for this business to remain appealing. If we find that 4.5x is a suitable level, we must be creative and proactive in achieving that. While I won’t disclose specific ideas on this call, we have a variety of options. Lastly, we have the ability to spin off or track an entire business, as we did with Sunrise, or we could track or spin a stake in a business.
For example, if we decided to track or spin our interest in VMO2, we could provide investors an option to directly own the shares or a part of the shares we hold in that business. I'm not suggesting that we will take this step, but I want to emphasize that there are numerous options available to us, which I find exciting, as they offer various pathways to close the value gap.
I have a question on the U.K. for Lutz. So if you look at Virgin Media O2, it posted a second successive quarter of heavy broadband declines. But can you comment in terms of your view in terms of what has driven the declines? And how optimistic are you that the level of broadband declines can reduce going forward? So do you need to accelerate the upgrade of the cable network to fiber? Do you need to accelerate footprint expansion with nexfibre? And what have you seen in terms of broadband net adds in July?
Lutz, go ahead.
Yes, your observation is correct. In the second quarter, we experienced a loss of fixed customers similar to what we saw in Q1, primarily driven by churn. Our performance in gross additions is strong across nexfibre and our existing coverage, so we do not have a sales issue; the challenge lies with churn, which is mainly due to pricing. Competitors are offering around GBP 300 to lure customers away, resulting in lower retention and customers leaving before even engaging with us. The primary reason for this departure is price; that is the only factor. We are not losing customers due to technology. To address this, we have developed a robust retention strategy that has allowed us to grow ARPU over the past 18 months, making us the leader in ARPU in this market. Our focus now is to create an effective prevention strategy to extend customer lifetime value into new contracts. As a result, a significant number of our customers are now under a minimum contract length, with many exceeding six months. Regarding your question about July, it showed some improvement, but conditions remain challenging. We do not provide specific guidance on fixed net adds quarterly, but I can confirm that we are improving our prevention strategy with more customers under minimum contracts, and we are optimistic about stabilizing the situation. I hope this provides clarity.
I was just curious what you see on the broadband consumption front that is driving consumer utility and pricing power, maybe as AI agents, live sports, streaming, gaming, low lag apps. But do you see the consumers being more facile in the use of broadband? Or is it fairly plain vanilla? And then secondly, as you're well aware, I mean, Charter has had some postponements on DOCSIS 4.0, really talking about some of the expensive network requirements. Clearly, I guess, your network topology in the Netherlands is very favorable. And as people know, it's very dense population and flat topology, but it's still pretty striking that it's 90% less expensive than doing fiber all the way. It seems like a bit of an anomaly. Could you just clarify that?
Sure, Matt. On the broadband consumption side, it's noteworthy that both mobile and fixed consumption are not increasing as rapidly as they historically have. While it’s not that consumers have stopped wanting to use their devices or engage in activities, we are seeing a leveling off in consumption patterns, which used to see increases of 20% to 30%, especially on mobile. There's potential for spikes again, driven by factors like streaming and apps, which could play to our advantage by allowing us to maintain service quality without heavily investing in additional capacity. Currently, the rate of increase in consumption is stabilizing. Our pricing power stems from the quality of our network, the speeds we provide, and the demand for fast services. This is what customers are paying for, rather than simply tracking their consumption levels. Regarding DOCSIS 4.0, there are notable differences between the U.S. and the Netherlands.
We’re starting with an 862 megahertz network, making it easier to upgrade to 1.2 gigahertz, with plans to reach 1.8 gigahertz. We expect to have access to the necessary equipment and technology in time for trials and a rollout next year, targeting speeds of 2 to 3 gig. Additionally, we can optimize our DOCSIS 3.1 network to potentially reach those speeds as well, which is appealing to most customers. Overall, we're confident about our timeline and cost efficiency, which align with our existing capital expenditures, and we don't anticipate a significant increase in CapEx costs. Enrique, would you like to add anything about the relative costs of fiber versus DOCSIS 4.0?
Yes. Nothing really to add. I mean we've been together with the other CableLabs members developing the technology over the last few years. We're pretty confident we've done live demonstrations of DOCSIS 4.0 in the VodafoneZiggo network. As Mike pointed out, we're not going all the way from where we are today to DOCSIS 4.0. We are also doing upgrades on 3.1. So we're pretty confident these numbers are accurate. And as you pointed out in the question, the VodafoneZiggo network is quite friendly to the upgrade. So we're certainly taking advantage of that.
I have a follow-up question based on Lutz's earlier response. In the U.S., T-Mobile is gaining market share for several reasons, and they are leading in customer switching. However, I find it difficult to understand why, given the economic pressures in the U.K. and the situation with Altnets and CityFibre, customers would be willing to commit to contracts averaging $300. This behavior does not appear to be economically rational, especially since people have had ample time to assess the situation. It seems that some individuals are not learning from these circumstances.
Yes. I mean, go ahead, Lutz.
Yes, especially alternative networks are facing pressure. The cost of capital is high, and they need to refinance. Investors are eager to see increased network usage, which essentially boils down to market penetration. Their only option is to rely on pricing strategies. Consequently, they are implementing aggressive pricing and enticing customers to break existing contracts. If you're in a vulnerable position, this is the strategy you adopt. I agree, it is not a sustainable long-term approach for the market.
You've mentioned some aspects of cash flow generation for 2026, particularly regarding changes in capital expenditures at Telenet and in Ireland. Could we discuss that in greater detail to grasp the scale of these changes? Currently, Irish capital expenditures are about EUR 180 million a year, up from roughly EUR 80 million before the fiber upgrade. Will we return to that previous level? Additionally, regarding Telenet, while you indicated it will become free cash flow positive in the ServCo, we lack guidance for the NetCo. I estimate Telenet's total capital expenditures for this year to be around EUR 1.1 billion. What are your expectations for next year's expenditures?
Well, I appreciate the question. James, those are good ones. I'm pretty sure we're not going to be able to give you guidance for 2026 on this call. But Charlie, do you want to manage that?
Yes. I mean, to be honest, I'm afraid it's almost like saying, give us guidance for '26. It's just too early. I do understand why you'd want to know that, but we have to be allowed to go through our planning process. But what we can say is that certainly in the case of the Telenet ServCo, which I agree, we haven't clearly shown the separation. That's one of Mike's referenced in his slides. We have seen the peak level of CapEx, particularly on 5G and also on digital. So there should be a positive free cash flow profile from next year onwards.
So I guess just following on from Joshua's question, I believe it was in your answer, Mike. I'm just trying to think about these opportunities for tracking, spinning, IPO or evolutions of that. You did mention, I think, Mike, that maybe analysts were not recognizing or penalizing you guys on the sort of cable side of the network versus fiber. I'm just thinking it was clear, and you alluded to this, that the Sunrise asset always had a real fighting chance because of the interest rate environment in Switzerland, but that is quite unique. Why do you think analysts would value any of the other assets any differently from where Liberty Global is currently? I appreciate that the market is a lot smarter than analysts. I'm not going to argue that one. But what do you think creates value when these assets come out of the Liberty Global Group? Is it maybe just that a lot more European PMs can buy them within their mandate? Is it just a technical kind of opportunity there instead of buying the U.S. list? Or what gives you confidence that the markets would value these assets any higher than they currently are in the Liberty Global Group?
I think it's a few things, David. I think it's a few things. Number one, you pointed it out. There is a demand among European institutions to own either pure-play or local telecom assets. You see that across the board. As a NASDAQ-listed company, we were able to attract some of those investors, but many don't look at it either because it's perceived to be offshore, not onshore, or perhaps has a layer of complexity that makes it challenging for them to assess value. But when you can create a pure-play telecom asset as we did in Switzerland, I think, number one, you start to look at peers more in a different light. While Swisscom is an excellent peer, KPN might be even better, trading at 9x EBITDA. And when you line VodafoneZiggo up to KPN on almost any operating metric when it comes to physicals or financials, it looks pretty good. What are the differences? The difference of the balance sheet, of course, you've already raised that point, leverage and squeezing free cash flow out of the operations.
And I think those would be only two hurdles to a higher multiple on VodafoneZiggo, for example, as a pure-play stand-alone business, I'm pretty sure we can find a way to improve that. Second big difference is investors in Europe and investors of European telecom assets like dividends, clearly, and that's most of our peers, if not all of our peers, pay a large dividend. Sunrise is demonstrating that an 8% dividend yield, even with that high yield, is trading at a great multiple. I think the dividend yield at KPN is maybe 5%. So can you generate enough free cash in these businesses to adopt a capital markets strategy or a balance sheet strategy that delivers dividends to investors on a reasonable, predictable long-term basis? Those are not hard equations to solve when you have stable businesses as we do. I understand it's not immediately obvious how we do those things. But trust me, when I say that to put a slide like this up on the screen implies we believe we have a path in each of these instances to create a story that will be appealing to investors. And that's how I'd leave it.
I was just wondering if you could expand a little bit more and talk about your turnaround in VodafoneZiggo and early evidence both competitively and operationally in terms of how that's going. Wondering if you could talk a bit more.
Sure. I'll let Stephen elaborate on that. I'm not sure if you caught the earlier comments, but there's a dedicated slide in the presentation about this. Stephen, could you provide some additional insights?
I think the slide that you published, Mike, earlier in the slide deck is probably the best summary of it. So we've got four specific areas that we've looked at as I came into the organization. We've tucked in behind each of those four. We've reset our organizational model. It gave us an opportunity to take some costs out as well, which we needed to do, specifically pointed at being more aggressive in the marketplace. I think over the last couple of years, we've taken a step back from that. Secondly, as part of that, getting broadband pricing right for the market, I think we're out of kilter with the marketplace, and getting that as a first step right was important. Like Lutz, tackling the churn problem. We don't have a gross adds problem either. We have a churn problem. Part of the solution was fixing our pricing, but also fixing our trading practices and our contracting. You are seeing the green shoots.
May and June were pleasing to us having implemented much of this in April and May. The overhang of are we good enough broadband network, we've taken away. We're fully back in the plan to roll out HFC. We've got an aggressive plan, I think, over the next 18 months to land at. And then I think we were short on marketing. We were short on positioning the Ziggo brand where it needed to be back in the net connectivity world. We were short on investing in FMC, which you'll see coming soon. We think there's great opportunity for us to attack with hollandsnieuw. We think there's a market space for us to go after that. So I think just tightening everything up, being more focused, and bringing an organization behind a plan that puts us, as I said, on the front foot and in the attack, and that's where we are today, and you'll see more from us over the next 12 months.
Yes, I want to be really thoughtful on commenting on internal restructuring or employee matters as they should be, that article was obviously not authorized by us. But suffice it to say, the trajectory we're trying to illustrate here is a good one. And there are lots of tools in the toolbox to ensure and deliver an operating structure that is more flexible and more aligned and fit for purpose. All that really means is, yes, I think you can assume that over time, we will be through either new revenue sources or new operating models, we will be providing to you guidance for that number, which is lower and lower and lower. So I do think if you're one of those analysts that puts a big multiple on it, I would get the pencil out, start determining on your own what that number could be, might be. And hopefully, that's a tailwind to your target price. I think we have time for maybe one or two more, operator.
The next question comes from the line of Steve Malcolm with Rothschild & Company Redburn.
I want to revisit the U.K. issue and address your question more directly. Clearly, your customer churn is a concern. Part of this has always been due to your limited coverage in the U.K., and it seems like your plans to expand have slowed down over the past year. It appears that nexfibre is carefully considering whether to deploy fiber in areas that already have two providers. Regarding consolidation, I have a two-part question. First, how much thought have you given to bridging this coverage gap? Openreach covers 30 million lines, while you cover 18 million. Secondly, how do you view the opportunity to bridge that gap? Would you consider resuming wholesale agreements with Openreach, as it seems like a logical step given the mismatch between your fixed and mobile services? This could help expand your market and possibly address some of the challenges related to natural customer churn. I’m interested in your perspective on this.
Thanks, Steve. It's the right question, and it's a good one. As you point out, we do reach 18.5 million homes. It's not the entire marketplace. Obviously, we do look at other means of reaching another 10 million homes, let's say. And I'm not going to be specific on this call, except to say it is the right long-term strategic move for VMO2 to be a national player on fixed as it is in mobile. How we get there, with whom we get there, those are more technical questions, which I'm not going to get into this morning, but you're right to ask us about it, and we see it similarly.
My questions have mostly been answered. So let me ask this. Mike, in your prepared remarks, you mentioned framing the exit from Vodafone, but perhaps I missed it. Could you provide some context on that, explaining what happened, why you decided to exit at this time, and how you view the situation?
Sure. Sure, sure. And I will say right upfront, I don't necessarily want you to assume that the reason we've exited the position is because we don't have faith in the stock or in Margarita, that's not the case. We just have to look at what's the best use of our capital. We had really limited exposure to the stock given the collar structure of the position anyway. And there was not much strategic value in the end to the position. So I think it's the right move for us to put our capital into the best possible use. In this case, I don't think that long-term holding was achieving that. So that's really the only color I can give you on that.
So is that a change when you actually bought it?
Not necessarily. At that time, we were unsure about the future. We were perhaps optimistic that we might see more favorable conditions and a different outcome. Ultimately, similar to you, we need to make decisions about where we allocate our cash every day. This particular decision is more about immediate priorities rather than having a long-term strategic perspective on Vodafone as a company. I appreciate everyone joining the call. We've exceeded the hour mark, and the markets are indeed challenging. You've heard that message, but we are actively pursuing opportunities, and the management teams you are listening to are focused on investing, innovating, and succeeding. Our primary focus is on value creation, which we like to refer to as our guiding principle. It's important for shareholders to see that value creation come to fruition. We possess a lot of options, as we've mentioned, and we will pursue actionable strategies and share those when they are feasible and clear. Regardless of the outcomes, we believe they will help us move forward, and we are confident in our ability to create value for you. Have a wonderful summer, and thank you all for joining.
Ladies and gentlemen, this concludes Liberty Global's Second Quarter 2025 Investor Call.