Prepared remarks
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Liberty Global's Second Quarter 2026 Investor Call. This call and the associated webcast are the property of Liberty Global and any reproduction or retransmission or rebroadcast of this call or webcast in any form without the expressed written consent of Liberty Global is strictly prohibited. At this time, all participants are in a listen-only mode. Today's formal presentation materials can be found under the Investor Relations section of Liberty Global's website at libertyglobal.com. After today's formal presentation, instructions will be given for our 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 fact. 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 will now turn the call over to Mr. Mike Fries.
Alright. Welcome, everyone. Thanks for joining us. We have got plenty to share with you today, so I am just going to jump right in and then hand it over to Charles. Of course, we've got the whole team here with me, so get your questions ready. We are speaking from slides today. I'm going to kick it off on slide 5. I really like to start with this graphic. I think it demonstrates pretty clearly how we operate, how we allocate capital, and how we create value for Liberty Global. Our story is, of course, anchored by world-class telecom assets in Europe that generate €22 billion of revenue and €8 billion of EBITDA in the aggregate. While each of these markets has its own unique operating characteristics, Europe as a whole, in my opinion, is catching a bit of a tailwind. Deregulation, sovereignty, and the benefits of AI are colliding to change the narrative, and I think we will benefit from those trends. Despite the size, scale, and growth prospects of our businesses, we believe our stock today reflects no value for these assets, and I will show you how I get to that conclusion in a moment. That belief is what is driving us to unlock the intrinsic value of our telecom businesses. Fortunately for us, unlike many of our peers, we have both the financial and structural flexibility to achieve transactions like the spin-off of Sunrise, which by any measure created meaningful value for all of us. As we will discuss in a moment, we are making outstanding progress on our plan to do the exact same thing in the Benelux with the Ziggo Group next year. At the same time, as we reshape Liberty Global, we have pivoted resources towards our Liberty Growth portfolio, where we have demonstrated again and again our ability to create significant value in media, sports, infrastructure, and tech. The recent sale of our stake in EdgeConneX, where we realized $750 million and a 4x multiple over about 10 years, is just the latest example. Finally, we have reshaped our corporate structure to be more agile, more efficient, and more focused on these two core platforms. As a reminder, we are generating today hundreds of millions of dollars of annual revenue into Liberty Global, the corporate group, from tech, financial, and management services that we provide to both our telecom and growth operating companies. When you factor in the recent restructuring, our operating model and reduction of headcount, we have effectively brought down our net corporate cost by nearly 75% over the last two years, and we believe we are on our way to a breakeven position as early as next year. So that is the broad picture. Let me jump into the three key highlights I think are most critical for you to know about this quarter. Number one, it was a strong quarter commercially, particularly in the Netherlands, where VodafoneZiggo continues to execute brilliantly on its turnaround plan. This was our best consumer broadband performance in six years, and I will talk about that. As Charles will outline, we are confirming all of our 2026 guidance across the board. Second, our plan to spin off the newly formed Ziggo Group, which consists of our Dutch and Belgian operations, is right on track. I will go through this in some detail, but importantly, our fiber-sharing arrangement with Proximus that will result in a single fixed network across 75% of Flanders was approved by the Belgian regulator yesterday. This is a big milestone for both our operational and balance sheet initiatives in this market. I am pleased to report that we will be closing on the acquisition of Vodafone's 50% interest in the Dutch business at the end of this month. Third, we have overachieved on our plans to monetize assets and generate cash from our Liberty Growth portfolio. Year-to-date, we have raised $1.2 billion, well in excess of what we might have indicated, including $900 million from disposals of Liberty Growth and $3 million from an asset-backed loan on our Wyre stake in Belgium. I think it is important to point out that this $1.2 billion is above and beyond the €1.2 to €1.4 billion we intend to raise from asset sales in Belgium and the Netherlands to reduce debt in those markets. As a result, we are increasing our year-end corporate cash forecast for the Vodafone acquisition from $1.5 billion to $2 billion. Essentially, we will end the year exactly where we started from a cash point of view. The next slide goes deeper on our announced plans to spin off the newly formed Ziggo Group. The key takeaway here is that we are making substantial progress on all the key building blocks required to achieve this major milestone for shareholders. On the left side, you will see where we are on the three strategic and financial pillars that underpin the listing of Ziggo Group, and the tangible progress we have made across each of them. We have all the approvals we need and are on track to close on Vodafone's 50% stake in the Netherlands by the end of the month. This is foundational for the creation of the Ziggo Group and unlocks multiple other benefits, including the realization of financial and cross-market synergies. The completion of our NetCo/ServCo split in Belgium into wire and Telenet was another landmark achievement. This gave us four key things: a fully financed fiber build-out that is off the Ziggo Group balance sheet; the rationalization of the fiber market in Flanders through our cooperation agreement with Proximus; the opportunity to raise capital and reduce debt through the sale of a portion of our Wyre stake; and the rebalancing of debt between Wire and Telenet, which will result in a less levered Telenet with a declining CapEx profile going into our Ziggo Group structure. We have announced Stephen van Rooyen as the CEO of Ziggo Group and Jeroen Hoencamp as the incoming CFO. We are making significant progress to round out the balance of the team, which we will let you know about in September. We have already internally increased our estimate of the synergies from this transaction and expect them to be meaningfully higher than the €1 billion NPV we announced previously, so stay tuned for more details. As a result of this progress, we are being a bit more ambitious on the timing of the spin-off and are currently saying mid-2027 versus H2 2027. As we said in the past, the equity story is built around two things: reducing leverage to 4.5x and driving free cash flow to €500 million in the 2028 time frame. The bridge to €500 million of free cash flow we talked about on our last call and, of course, the deleveraging is further supported by asset sales of the €1.2 billion to €1.4 billion I just mentioned, all of which are underway. On the right-hand side of the slide is the money shot. The valuation metrics break down into three main components. On the bottom right, you will see our current stock price, roughly $11. We believe this represents a 20% discount to the fair market value of our cash and our Liberty Growth assets alone, and those are valued by independent appraisers. Perhaps more importantly, it implies essentially zero equity value attributed to our Liberty Telecom operations. We don't need to debate that conclusion; everyone's sum of the parts may look a bit different. Moving up the scale, about 19 months ago we spun off Sunrise, which we now believe represents $12 per Liberty Global share. Sunrise is traded on the Swiss exchange and has unlocked substantial value. We believe, over time, on a fully distributed basis, the Ziggo Group itself should trade on Euronext at a value of up to $14 per Liberty share assuming Jeroen can confidently guide the €500 million free cash flow target and the 4.5x leverage, and the market applies similar free cash flow yields to Sunrise. That is what we are playing for. It means that from an $18 stock when we announced the Sunrise spin-off, we have a clear opportunity to create $37 to $40 of value for shareholders, and we are squarely focused on delivering that value and making great progress every day. Our confidence in that goal for the Ziggo Group is bolstered by the great turnaround story at VodafoneZiggo. Essentially, if you look at the chart, in Q2 last year we lost 26,000 broadband subs and 5,000 mobile subs. Through a combination of commercial strategies, including new pricing structures, new broadband bundles, converged propositions, new premium sports content, and a strong campaign promoting the quality of our broadband network, Stephen and the team have delivered quarter after quarter of improved results since then, culminating in our first positive broadband quarter in Q2 since Q4 2022, and the best performance in six years. That goes along with 32,000 new postpaid mobile subs. Fixed ARPU for VodafoneZiggo was stable, both sequentially and year over year, at around €56, despite new front-book pricing, which you can attribute to price indexation and some content moves. Mobile ARPUs were largely flat sequentially at €17.60 and down 2% year over year. In Belgium, Telenet continued its recent commercial turnaround with improved broadband and mobile net adds versus last year, driven by new campaigns promoting our base brand and a revamped FMC offering that allows customers to tailor their own packages. Broadband and mobile ARPUs in Belgium were sequentially and year-over-year stable. Turning to the UK, Virgin Media O2 is the only scaled challenger in the UK, one of Europe's largest markets, with the number one mobile network by connections and the number two and most reliable broadband network according to recent research. Our fixed network reaches just under 19 million homes, nearly half of which are already fiber today. We have strong brands like Virgin Media, O2, and Giffgaff supporting over £10 billion of annual revenue and facilitating the launch of new services like O2 Satellite, Giffgaff Broadband, and Volt, our new FMC product. This is a strong foundation. This remains a highly competitive market. The consumer retail sector is becoming a street fight with Alt Nets and MVNOs, and we have to continue getting sharper, more agile, and more innovative. I like the moves we are making. We've hired Lutz Schuler as our new CEO of Consumer; she has the entire consumer division reporting to her. She spent 10 years at Sky launching broadband, mobile, and Sky Glass, and in two weeks is already making a difference in our commercial strategy. We have great potential in wholesale, both in mobile where we generate €800 million of profitable revenue and in fixed wholesale where we will capitalize on our scale and growing fiber footprint, which the Netomnia acquisition will advance once approved. Lutz and the team are well underway with AI-driven efficiency and growth programs. We're committed to advancing our networks: our 5G reach is 88%, and even before fiber we have 1-gig broadband available across the market. These commitments will pay dividends in B2C and B2B. On the capital structure in the UK, both Liberty and Telefónica are completely aligned on our long-term commitment to this business. We appreciate that leverage today exceeds our original targets and that we have decided to reinvest more in our networks. We have many tools, both organic and inorganic, to drive greater free cash flow, stronger operating performance, and lower leverage over time. Turning to Virgin Media O2's quarterly operating results, while our broadband and mobile net losses were better than a year ago, we still face significant competitive activity and increased churn. I believe the initiatives discussed and the new consumer management team will address these challenges. Mobile ARPUs are up sequentially and flat year over year as we focus on retention efforts. Fixed ARPUs were flat sequentially but down 4.6% year over year, largely in line with overall pricing in the market. Lutz is on and we can dig into these results further during Q&A. Virgin Media Ireland broadband net adds have been steady over the last five quarters, supported principally by our wholesale fiber business. Our fiber rollout is on track to be substantially complete at the end of the year, and we will be expanding our retail footprint off-footprint, which will help our business and reduce fiber CapEx. Fixed ARPUs have been very steady at €61 and mobile postpaid net adds remained positive, supported by 15-year offers and retention strategies. A word on AI: the headline is that the telco sector is ready-made to realize AI benefits, which over time should be transformational. We sit on the assets AI needs most: large amounts of unique data, massive cost structures like call centers and field operations that are built for automation, millions of daily touch points with consumers, and infrastructure like connectivity and data centers that support the distribution layer for AI. We're looking to benefit from the same opportunities: driving margins through cost efficiencies, driving customer revenue growth through hyper-personalization, driving demand for our infrastructure, and driving investor interest as they rotate into sectors that are net beneficiaries of AI. A big lesson for me has been finding the right balance between building and buying solutions. Increasingly we find partners able to help us integrate faster, launch sooner, and scale more effectively. Examples we're doing today include reaching 65% of our VMO2 customer base with our personalization engine, generating 75% call containment rates through our generative AI pilots in the Netherlands, reducing fraud, optimizing CapEx, and lowering truck rolls and technician cost. We expect to generate annual savings in the hundreds of millions; everyone knows we are just scratching the surface. Based on work with McKinsey and others, we analyzed core operating expenses and assessed the proportion addressable by AI over time, with potential savings of 20% to 40% and even as high as 70% in areas like customer care. These are indications of what's achievable over time, not formal guidance. Importantly, we are seeing our largest suppliers, typically software and outsourcing partners, looking for early renewals in exchange for passing along AI savings to us. So we're getting benefits on both ends. There are significant revenue and CapEx benefits to be realized as well. We are also prioritizing opportunities to invest in AI companies through our Liberty Growth tech portfolio. Historically we've invested in scale-up companies where there's strategic value to our businesses, such as Plume, Aviatrix, and Samba TV. Since inception, we've invested about $700 million into the tech portfolio and taken out around $600 million through distributions and exits. With about $100 million net in today, the portfolio has a market valuation of $400 million. Recently we've pivoted to AI-driven investments where it makes sense: examples include ElevenLabs in voice AI, companies in cybersecurity and AI/RAN, Arrcus optimizing next-generation network infrastructure, and our AtlasEdge data center investments. We are investing with top VC firms and tech companies and will remain focused on AI infrastructure, models, voice and video, cybersecurity, and AI applications like customer care, sales, and finance. Our infrastructure vertical within Liberty Growth is playing the AI space through data center investments in AtlasEdge and alternative energy investments. We're taking a 360-degree view of the AI opportunity, which we believe is the best way to innovate and transform our business over the long term. It's going to be one hell of a ride. I'm excited about the work we are doing and happy to take questions. In the meantime, Charles, over to you.
Thanks, Mike. Turning to our Q2 financial highlights, our OpCo performance continues to track against 2026 guidance, as I will get into starting on the next slide. We closed the quarter with $2.4 billion of corporate cash, supported by proceeds from our EdgeConneX disposal and additional corporate liquidity provided by a new Wyre stake asset-backed loan. We have completed $4.1 billion of financings year to date, including the imminent separation of the Wire and Telenet capital structures following the recent approval of the fiber-sharing agreement. The next slide sets out the Q2 financial results for our Benelux companies. As a reminder, we now present Telenet's financial performance excluding Wire to provide greater clarity given the full separation of the two companies and their capital structures. Turning to the financials: revenue trends at VodafoneZiggo sequentially improved during the quarter, supported by fixed customer volumes returning to growth in line with the 'how we win' plan. While repricing remains a headwind today, we anticipate that impact to reduce as we move into 2027. Adjusted EBITDA declined in line with our guidance, reflecting the in-year impact of the 'how we win' plan and some one-off investments in network resilience, which we identified when we gave guidance. Cost-reduction initiatives remained firmly on track and continue to support our expectation of returning the business to EBITDA growth from 2027. Adjusted EBITDA less P&E additions were lower year-on-year, primarily reflecting higher CapEx in the quarter related to network resilience investments. At Telenet, revenue continued to be impacted by our strategic decision not to renew Belgian football rights for a season and a one-off adjustment related to a VAT dispute, partly offset by higher revenue from the new Wire management services agreement. EBITDA growth was driven by the Wire management services agreement and lower Wire wholesale fees. Looking ahead, we will see adjusted EBITDA impacted by the return of costs associated with the new Jupiler League contract in the second half. Turning to the UK and Ireland, Virgin Media O2 service revenue was broadly in line with our expectations. Competitive intensity in the fixed market remained elevated, while the O2 business continued to rationalize parts of its portfolio to support long-term growth, resulting in a reduction in headline revenues. This was partially offset by wholesale revenue growth in our market-leading MVNO business. There was also an improvement in mobile service revenue trends sequentially. Adjusted EBITDA declined by 2.9%, driven by lower revenue but supported by further cost-efficiency measures. At Virgin Media Ireland, service revenues modestly declined, impacted by continued competition in the consumer fixed markets, and adjusted EBITDA declined by 4.7%. Regarding capital allocation, we remain committed to our disciplined model, rotating capital into high-growth investments and strategic opportunities that drive long-term value creation. Capital intensity at our key OpCos remains elevated but within guidance ranges for the full year. Virgin Media O2 continues to see elevated CapEx driven by higher investments in mobile capacity, the ongoing fiber upgrade program, and IT digital spend. VodafoneZiggo CapEx was driven by network upgrades, including DOCSIS 4.0 digitization efforts and one-off investments in network resilience and service reliability in 2026. CapEx has meaningfully stepped down at Telenet as 5G network upgrades are largely complete and our digital platform investments are mostly done. We expect this to continue to trend down next year. Virgin Media Ireland CapEx continues to step down in 2026 as we largely complete the fiber upgrade of around 1 million premises; we expect Ireland to be free-cash-flow positive because of this in Q4 for the first time since the beginning of the upgrade program. On the Liberty Growth walk in the top right, fair market value of our growth portfolio decreased to $2.9 billion in Q2, mainly driven by the successful sale of EdgeConneX and UPC Slovakia, partially offset by modest investments in Formula E, Nexfibre, and AI/RAN tech. The key fair market value adjustments were an increased realized value for EdgeConneX on sale and an increase in the Lionsgate stock price. On our cash walk, we ended the quarter with a consolidated cash balance of $2.4 billion, mainly driven by proceeds from the EdgeConneX and UPC Slovakia transactions. This excludes the $340 million of additional liquidity provided by our loan facility secured against our Wyre stake, half of which resides outside the Ziggo Group according to the terms of the Vodafone transaction. A few words on EdgeConneX: this was an excellent outcome for our growth portfolio and a clear proof of our strategy working as intended. First invested in 2015, we funded its growth with around $177 million of gross equity in total and monetized the position in stages. We achieved a full exit in Q2 2026 with $604 million of proceeds from the final stake, on top of $122 million from earlier sales. Headline numbers: $177 million invested, $726 million of total proceeds, roughly a 30% IRR and a 4x multiple of money. Beyond the financials, the outcome validates our right to play in digital infrastructure and data centers and we are applying that playbook to our AtlasEdge investment. On treasury, we have been proactively dealing with our 2028 and 2029 maturities and successfully refinanced more than $4 billion across our credit silos year-to-date. In Belgium, we are formally separating the capital structures between Telenet and Wyre following regulatory approval of Wyre's fiber-sharing agreement with Proximus. Wyre can draw down the €4.35 billion fully underwritten facility to repay a €2.3 billion intercompany loan with Telenet and pay a €400 million Wyre dividend as part of the wider debt rebalancing. Telenet will use the proceeds to repay €2.5 billion of 2028 maturities. At VodafoneZiggo, we refinanced €1.3 billion leaving us with no 2028 maturities and reducing 2029 maturities. We remain opportunistic ahead of the spin-off and are on track to execute a number of deleveraging steps pre-spin. At Virgin Media O2, we remain opportunistic in the debt market as we look to continue to push out our 2029 maturities, but we acknowledge recent trading levels. As Mike discussed, we are committed to a stable long-term capital structure for VMO2. Telefónica and we recognize that leverage is above our 4-to-5x target and that credit spreads are currently elevated, but we both believe we are making investments today that will deliver EBITDA growth and deleverage the company back towards our target range. We are investing CapEx at roughly 22% of sales (25% if you exclude hardware sales), which is significantly above the average through the cycle for a telecom company to support this strategy. The small dividend projected to be paid to shareholders will be reinvested into the Netomnia transaction, which is a key transaction for Virgin Media O2 to keep investing in its fiber plan. Both shareholders continue to look at inorganic opportunities to further strengthen the competitive position and financial performance of Virgin Media O2. We remain on track to deliver against this strategy and will update investors in February next year. Finally, turning to full-year guidance for 2026, we are reconfirming all guidance metrics at VMO2, VodafoneZiggo, and Telenet, as well as our guidance for corporate adjusted EBITDA. In addition, we are upgrading our full-year corporate cash target from $1.5 billion to $2 billion, supported by EdgeConneX proceeds and the Wire asset-backed loan. That concludes our prepared remarks for Q2, and over to you for questions.
Questions and answers
The question-and-answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star or asterisk key followed by the digit 1 on your phone. In order to accommodate everyone, we request that you ask only one question. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will pause for just a moment to give everyone an opportunity to join the queue. Your first question will go to Joshua Mills with BNP Paribas. Joshua, your line is open.
Hi, guys. Thank you for taking the question. I'll keep it to the UK. Can you hear me? I just want to ask, firstly, on the UK ARPU trends. In the past, you talked about issues from declining legacy revenue like voice and TV. Today, you're talking more about declines being related to front-book price competition, so it sounds to us like it's no longer just a legacy issue; it is more related to market conditions as they stand today. Is that a fair characterization? If so, do you think we are at trough ARPU declines and trough service revenue declines at the moment, or could things continue to get worse in the second half given the level of competition we see? Secondly, on the volume side: in the past, when you've had sub losses in markets like the Netherlands and Switzerland, you took bold steps to rebase customers onto cheaper tariffs proactively to stabilize the base. It looks from today's strong results in VodafoneZiggo that that had a good effect. Is it something you would consider in the UK as well, or do you plan to remain happy with the level of subscriber losses in the near term as long as you do not take too much of a hit on ARPU? Thank you.
Thank you for the question. When we set guidance for 2026, we expected the market to be very competitive. I said that about 70% of the service revenue guidance decline of minus 3% to minus 5% would come from fixed consumer, which is exactly what's now kicking in. Is the market more competitive? Yes. Compared to Q2 2025, the average selling price in the market is down about 4%. That's the context. Where is this 4.6% fixed ARPU decline coming from? The biggest driver is our own prevention and retention activity, not radical recontracting that ignores ARPU. We have built a very sophisticated retention machine where we know down to every 60 homes what customers want and can offer them that. We have also built a prevention machine. So the biggest driver for ARPU down is targeted prevention and retention actions. More than 80% of our customers are on contracts with significant remaining term. We will keep doing exactly that going forward. Is this the worst of it? It's hard to say because the market evolution is uncertain. There are new promotions announced from Openreach that Ofcom must accept, and if they kick in from October, the market could become even more competitive. If not, I would expect the same competitive level and our prevention efforts will help even more. I hope that helps.
Next question, operator?
Your next question will go to the line of Robert Grindle with Deutsche Bank. Robert, your line is open.
Hi, everyone, and thank you. Well done on getting the regulatory approval. I think it's taken a bit longer than you thought. What is the timeline from here on the fiber collaboration and the separation of Telenet? Alongside that, the monetization of Wyre: would you hope the monetization announcement is in 2026, or is that in next year now because things have gone a bit more slowly? Thank you.
Thanks, Robert. It has taken a while to get to this point, but as I articulated earlier, this approval is a building block and a foundational piece. Now that it's done, it opens up a lot of key next steps. Telenet and Wyre have been operating as separate businesses for some time; we've been reporting on them separately. What BCA approval allows us to do is rebalance the capital structure of each of those entities and proceed with the sale of a stake in Wyre, which is well underway. We have a dedicated team and advisers working on it, and we will diligently proceed with that transaction through year-end. It is possible we conclude it as soon as year-end or perhaps in Q1; it's well underway. This is just one of many things that the approval unlocks, all of which we view positively and which help accelerate timing on the Ziggo Group spin-off.
For clarity, the banking process was supposed to take place next week, which will access the €4.35 billion of Wyre financing. That will allow the dividend and the intercompany repayment flow to take place as part of the wider debt rebalancing. Thank you.
Our next question will go to the line of Polo Tang with UBS. Polo, your line is open.
Thanks for taking the question. It's about VodafoneZiggo and broadband. Can you clarify when you'll be able to start offering broadband in the Delta fiber footprint? Also, what do you think had the biggest impact in helping stabilize the VodafoneZiggo broadband base? Was it the ESPN content offers, pushing harder on recontracting customers, the Odido data breach tailwind, or something else? Do you think you can see improving or positive net adds going forward or is stable more likely? Thanks.
Hi, Polo. On the Delta footprint question: we plan to roll out in the Delta footprint we are operating in during the second half of the year. We expect to see that show up in our numbers in the fourth quarter. Regarding stabilization, it is not one single thing; it's a sequence of actions over the last six quarters. We brought our front-book pricing in line with the marketplace, invested in the core proposition, increased speeds — we are the only ones offering 2-gigabit across much of the country today — differentiated with a Wi-Fi guarantee, launched the ESPN bundle, and changed our marketing to focus more on connectivity and compete harder. Those combined efforts have helped. Our expectation is to continue to grow through the second half of the year. We have put in the pillars to sustain that momentum and aim to build on it.
Our next question will go to the line of Nick Lyall with Berenberg. Nick, your line is open.
Hello. Just a quick follow-up on the UK. What makes you think this is not a long-term decline for the UK? Your pricing is quite a bit above BT's and substantially above the altnets. I take Lutz's point that many customers are locked in for now, but why should you be able to sustain this pricing point? Is rolling out fiber and completing the fiber footprint part of the answer, or is there a risk ARPUs keep slipping for many quarters? Second point for Charles: when you mentioned inorganic options in the UK, did you mean buying assets rather than selling to reduce debt? Have I got that right? Thanks.
Lutz will address the consumer positioning, but on the inorganic point, both Telefonica and Liberty are firmly behind this company. We are committed and investing at elevated levels to secure the long-term competitiveness. We're open to inorganic moves whether buying or selling, as appropriate. We sold stakes in the past and remain opportunistic. We will give an update in February on the next phase of financial development.
I'll add that the Netomnia deal is an example of an inorganic transaction we believe is beneficial to VMO2 from both a credit and an equity perspective. 'Inorganic' can include many types of transactions beyond pure cost reductions or organic revenue growth.
We have three very strong brands: Virgin Media, O2, and Giffgaff. We can sell different products across those brands and target different customer segments. We just launched Giffgaff Broadband and are starting to gain traction. On average, every second household is a customer of ours but we're present in only about one out of three product relationships. We have strong mobile connectivity, strong broadband, and good video products for different segments. Even if fibre becomes cheaper in the market, the combination across everything to deliver value-for-money with good service is our strategy. We have to be prepared for the competitiveness to remain high, and we will continue executing on our plans.
Our next question will go to the line of Ulrich Rathe with Bernstein. Ulrich, your line is open.
Thanks very much. My question is on the quantification of AI cost benefits. How confident are you that you can hold on to these kinds of benefits? Costs and benefits in the industry tend to diffuse, and consultants or others can act as mechanisms for diffusion. What are the reasons these cost benefits are ultimately good for the bottom line in the longer term? Thanks.
If you mean whether the benefits are real and sustainable, I think they're coming at us from both directions. First, organic, self-induced efficiencies: every company in the group is implementing solutions today that are making them more efficient, faster, and more profitable. Second, partners and suppliers are also looking to pass along the AI savings they realize in exchange for renewals. Models and tooling are getting smarter and cheaper, and our industry remains largely on-premises — we are only about 20-25% in the cloud — so there's a lot of opportunity ahead. This will require a rethink of operating models, talent, and technology. I believe it's real and sustainable; we are working to deliver it.
Our next question will go to the line of Matthew Harrigan with Stonix. Matthew, your line is open.
Thanks. On the industrial blocking-and-tackling of AI: do you have issues with token costs? Some peers see token-cost pressures and expect discernible benefits in 2027, with a bigger inflection point in 2028–2029. Do you see a decided inflection point late in the decade, or is it a gradual process? Also, you talked about costs, which are quantifiable; on the revenue side, were those also addressed with McKinsey and others, and is that more of a closed topic because it's harder to realize and you don't want to be aggressive about it?
We view this as a journey rather than a single-quarter event. It will be gradual, and the pace depends on technology, partners, and our ability to implement solutions. On the revenue and CapEx side, we are addressing these as well and many initiatives are already in action. Lutz's personalization engine, for example, is driving churn reduction and next-best offers today. We are doing this across the board, but it's incremental and requires organizational change to capture the full benefits. Enrique, do you want to comment on token economics?
Absolutely. We, like others, are watching token costs and the evolution closely. We have been disciplined in applying tokens against business cases that deliver net benefits. Even though token usage and related costs are increasing in some areas, we are confident we can capture significant net benefits. We do not see a major issue with current token costs given our targeted approach to use cases tied to tangible outcomes.
Our next question will go to the line of James Ratzer with New Street Research. James, your line is open.
Good afternoon. On Virgin Media O2: Telefónica announced a major cost restructuring in Germany recently. Do you see scope to take similar, more radical cost-reduction action at Virgin Media O2? Also, you raised your Topco cash target to $2 billion. Would you consider injecting any of that cash back into Virgin Media O2 to help deleveraging? Thank you.
It's premature to discuss any Topco capital allocation into VMO2. We think the business can generate more free cash and we are assessing all levers, including cost reductions, organic and inorganic tools to drive free cash flow and reduce leverage. We're in the business-planning phase now and will consider all realistic options.
The business is on track with the plan set out at the start of the year and has reconfirmed guidance. We understand leverage is outside the range and take it seriously. Give us time to work with management on the right next steps, which could involve cost reductions. We'll come back to you in February with more detail.
Our next question will go to the line of David Wright with Bank of America. David, your line is open.
Hi. Thanks for the presentation. A question on the accounting change in VMO2: it seemed unintuitive to amortize commissions over an extended period while net losses and higher churn are increasing. Why have you chosen that approach, and is it a one-off impact or a run-rate change that will support the EBITDA line going forward? Was this adjustment anticipated when you gave EBITDA guidance, or is it incremental? Also, Charles, when you mentioned an update in February, should we expect anything more significant than normal business planning? Thank you.
Accounting estimates are regularly revised based on facts and in consultation with auditors. The revision reflects our real-life experience and we believe it is the right way to account for these items. It does have a short-term benefit to EBITDA and it was not explicitly anticipated in the original guidance. However, it's not a large number in the scheme of things. The key metric we focus on is free cash flow. In prior years such accounting items have moved both ways; consider this part of the normal swings of accounting. The February update is the usual annual planning update; it's not intended to be a dramatic event.
One additional point that helps explain the accounting: when you do a lot of prevention and recontracting, you bring customers into new 24-month contracts and you pay commissions for that. Those commissions are then amortized over the new contract lifetime. So if we're recontracting many customers and increasing contract durations, you will see that accounting effect. It makes sense in the context of the business actions we're taking.
That concludes the question-and-answer session. I will now pass the conference back to Mr. Mike Fries for closing remarks.
Great. I'll keep it brief. Thanks for joining us. We always appreciate your time. There's a lot of information to digest. You know where to find us if you have further questions. It will be a busy summer for us across the group, particularly in the Benelux, so stay tuned for announcements there. Speak soon and stay well. Thanks very much.
Ladies and gentlemen, this concludes Liberty Global's Second Quarter 2026 Investor Call. As a reminder, a replay of the call will be available in the Investor Relations section of Liberty Global's website, where you can also find a copy of today's presentation materials. Thank you for your participation and you may now disconnect.