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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. Any reproduction, 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, 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 would now like to turn the call over to Mr. Mike Fries.
All right. Welcome, everyone. Thanks for joining us. We have got plenty to share with you today. I am going to jump right in and then hand it over to Charles. We have the whole team here with me, so get your questions ready. We're speaking from slides today. I'll kick off on slide 5. I like to start with this graphic because it demonstrates how we operate and allocate capital and how we create value for Liberty Global. Our story is 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 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. I will show how I reach that conclusion in a moment. That belief is driving us to unlock the intrinsic value of our telecom businesses. Unlike many peers, we have both the financial and structural flexibility to achieve transactions like the spin-off of Sunrise, which created meaningful value for shareholders. As we will discuss, we are making outstanding progress on our plan to do the same thing in the Benelux with the Ziggo Group next year. Simultaneously, as we reshape Liberty Global, we have pivoted resources toward our Liberty Growth portfolio, where we have repeatedly demonstrated our ability to create significant value in media, sports, infrastructure, and tech. The recent sale of our stake in EdgeConneX, which we discuss in the press release and slides, where we realized roughly $750 million in proceeds and achieved about 4x our investment over roughly 10 years, is an example of that. Finally, we have reshaped our corporate structure to be more agile, efficient, and focused on these two core platforms. As a reminder, we are generating today hundreds of millions 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. With the recent restructuring and reduction of headcount, we have effectively reduced 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. That's the broad picture. Let me jump into the three key highlights I think are most critical about this quarter. First, 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. I'll 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'll 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 our operational and balance sheet initiatives in that market. I am pleased to report 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 in 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 assets and $3 million from an asset-backed loan on our Wyre stake in Belgium. It is important to point out that this $1.2 billion is above and beyond the €1.2 billion 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 roughly where we started the year from a cash point of view. Moving on to the spin-off of the Ziggo Group: the key takeaway is that we are making substantial progress across the strategic and financial pillars required for listing Ziggo Group. As I mentioned, we have 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 Ziggo Group and unlocks multiple other benefits, including realization of financial and cross-market synergies. The completion of our NetCo/ServCo split in Belgium into Wyre and Telenet was another landmark achievement. This gave us four key things: a fully financed fiber buildout 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 Wyre 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 remainder of the team and will update you in September. Internally, we have increased our estimate of synergies from this transaction and expect them to be meaningfully higher than the €1 billion NPV we announced previously. As a result, we are more ambitious on the timing of the spin-off and are currently saying mid-2027 versus H2 2027; it could be even faster depending on how things transpire. The equity story is built around two things: reducing leverage to 4.5x and driving free cash flow to €500 million in the 2028 timeframe. The bridge to €500 million of free cash flow we discussed on our last call, and deleveraging is supported by asset sales of €1.2 billion to €1.4 billion, all of which are underway and making substantial progress. On the right side of the slide is the valuation analysis. Our current stock price, roughly $11 in the orange bar, represents a roughly 20% discount to the fair market value of our cash and Liberty Growth assets alone, and those are valued by independent appraisers. Importantly, it implies essentially zero equity value attributed to our Liberty Telecom operations. About 19 months ago, we spun off Sunrise, which we now believe represents $12 per Liberty Global share; Sunrise trades on the Swiss exchange at around a 10.5% to 13.5% free cash flow yield, or roughly 8x EBITDA, and has unlocked substantial value. We believe that 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 the new Ziggo management can confidently guide to the €500 million free cash flow target and 4.5x leverage, and the market applies similar free cash flow yields to Sunrise. 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 focused on delivering that value. Our confidence in that goal for Ziggo Group is bolstered by the turnaround at VodafoneZiggo, which I will highlight next. Looking at VodafoneZiggo's chart on the right: in Q2 last year we lost 26,000 broadband subs and 5,000 mobile subs after a long period of declining performance. 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 improved results quarter after quarter, culminating in our first positive broadband quarter in Q2 since Q4 2022, the best performance in six years. This is accompanied by 32,000 new postpaid mobile subs. The next slide shows ARPU stats for VodafoneZiggo: fixed ARPU was stable both sequentially and year over year around €56 despite front-book pricing changes, attributable to price indexation and content moves. Mobile ARPUs were largely flat sequentially at €17.60 and down 2% year over year. On the bottom of the slide are operating results for Telenet in Belgium, which continued its recent commercial turnaround with improved broadband and mobile net adds versus last year. Commercial drivers include new campaigns promoting our base brand and a revamped FMC offering allowing customers to tailor their own packages like an à la carte menu, which has been well received. Broadband and mobile ARPUs in Belgium are sequentially stable and flat year over year. Turning to the UK: before jumping into VMO2 operating results, let me highlight where we see this business today and core drivers of value. 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 most reliable broadband network according to recent research. Our fixed network reaches just under 19 million homes, nearly half of which are fiber today. We have strong brands—Virgin Media, O2, Giffgaff—that support over £10 billion of annual revenue and facilitate regular launches of new services like O2 Satellite and broadband with Giffgaff or Volt, our new FMC product, plus other commercial initiatives. This is a strong foundation. The market is highly competitive and becoming a street fight, especially in the consumer retail sector with AltNets and MVNOs, so we must be sharper, more agile, and more innovative. I like our moves to achieve that, some of which are listed on the slide. We have hired Lutz Schuler as our new CEO of Consumer; she now 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. Watch for her strategic perspective. We see great potential in wholesale: in mobile we generate around £800 million of highly profitable revenue, and we will shortly launch Monzo to our list of MVNO customers; in fixed wholesale, we are striving to capitalize on our scale and growing fiber footprint, where the Netomnia acquisition, once approved, will advance our position. Lutz and the team are underway with AI-driven efficiency and growth programs. Our 5G reach is now 88%, and even before fiber, we have 1 Gbps broadband available across the market. These investments will pay dividends in B2C and B2B. On capital structure in the UK, both Liberty and Telefónica are aligned on our long-term commitment to this business. We acknowledge leverage exceeds our original targets in part due to slower growth and our decision 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. More on that with Charles in Q&A. Turning to VMO2 quarterly operating results: while our broadband and mobile net losses were better than a year ago, we continue to encounter significant competitive activity and increased churn. I believe the initiatives I referenced 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—maintaining value over volume. Fixed ARPUs were flat sequentially but down 4.6% year over year, largely aligned with overall market pricing. Lutz is on and we can dig into these results in Q&A. For Virgin Media Ireland, broadband net adds have been steady over the last five quarters, principally supported by our wholesale fiber business. Our fiber rollout is on track to be substantially complete by year-end, and we will expand our retail footprint off-footprint, both of which will help the business and reduce fiber CapEx. Fixed ARPUs have been steady at €61 and mobile postpaid net adds remained positive, supported by 15-year offers and retention strategies. Finally, on AI: the headline is that the telco sector is ready-made to realize AI benefits and, over time, this should be transformational. We sit on assets AI needs: large amounts of proprietary data, massive cost structures like call centers and field ops suitable for automation, millions of daily touchpoints with consumers, and infrastructure like connectivity and data centers supporting AI distribution. We aim to drive margins through cost efficiencies, customer revenue growth through hyper-personalization, demand for our infrastructure, and investor interest as AI beneficiaries. A key lesson is finding the right balance between building and buying solutions. Partners help us integrate faster, launch sooner, and scale more effectively. We are already generating results: reaching 65% of our VMO2 customer base with our personalization engine, achieving 75% call containment rates through generative AI pilots in The Netherlands, reducing fraud, optimizing CapEx, and lowering truck rolls and technician cost. These initiatives are table stakes for telcos, but we are realizing strong marginal improvements to economics, customer interactions, and network quality. We expect to generate annual savings in the hundreds of millions, though we are just scratching the surface. Based on work with McKinsey and Google, we analyzed core operating expenses across the group and assessed the proportion of cost addressable by AI over time. The analysis shows potential savings between 20% to 40% on many items and even as high as 70% on things like customer care. These are indications of what could be achievable over time, not formal guidance. We are implementing our own AI solutions with sophisticated partners and also seeing our largest suppliers offering early renewals in exchange for passing along AI savings they are realizing. So we are getting benefits both from internal initiatives and supplier-led improvements. These examples cover OpEx; there are also significant revenue and CapEx benefits to be realized. We are also prioritizing investments in AI companies through our tech portfolio. Historically, we've invested in scale-up tech companies where we see strategic value—examples include Plume, Aviatrix, and Samba TV. Since inception, we've invested about $700 million into our tech portfolio and realized about $600 million in distributions and exits; net invested is roughly $100 million, with a market valuation around $400 million today. Recently, we've pivoted to AI-driven investments where it makes sense, such as ElevenLabs (voice AI), companies in cybersecurity, data and automation that address telco operational backbones, and Arrcus optimizing next-generation network infrastructure, a good fit with AtlasEdge. We typically invest alongside leading VCs and tech firms. The infrastructure vertical within Liberty Growth is playing the AI space through data center investments in AtlasEdge and alternative energy investments. We are 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. I think it is going to be one hell of a ride. I'm excited about what we are doing and happy to take questions. Charles, over to you.
Thanks, Mike. Turning to our Q2 financial highlights, our OpCo performance continues to track against 2026 guidance. 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 Wyre and Telenet capital structures following 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 Wyre to provide greater clarity given the full separation of the two companies and their capital structures, which, as Mike mentioned, is set to happen following approval of the fiber-sharing agreement in Belgium. 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 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 on track and 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 Belgium football rights for a season and a one-off adjustment related to a VAT dispute, partly offset by higher revenue from the new Wyre management services agreement. EBITDA growth was driven by the Wyre management services agreement and lower Wyre 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 expectations. Competitive intensity in the fixed market remained elevated, while O2 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 consumer fixed markets, and adjusted EBITDA declined by 4.7%. We remain committed to disciplined capital allocation, 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 investments in mobile capacity, including spectrum integration, the ongoing fiber upgrade program, and IT/digital spend to improve seamless FMC offerings. 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 stepped down at Telenet as 5G network upgrades are largely complete and digital platform investments are finishing; we expect this to trend down further 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 in Q4 for the first time since the beginning of the upgrade program. In the Liberty Growth portfolio, fair market value 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 the AI/RAN tech pillar. The key fair market value adjustments were an increased value for EdgeConneX on sale and an increase in Lionsgate's stock price. On the cash walk, we ended the quarter with a consolidated cash balance of $2.4 billion, driven by proceeds from EdgeConneX and UPC Slovakia transactions, excluding the $340 million additional liquidity provided by our Wyre stake loan, half of which resides outside the Ziggo Group per the terms of the Vodafone transaction. On EdgeConneX: this was an excellent outcome for our growth portfolio and a clear validation of our strategy. We first invested in 2015 with a minority stake and over the following 11 years funded its growth with about $177 million of gross equity. EdgeConneX scaled to over 50 data centers across more than 40 markets and four continents. We monetized the position in stages and 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 total proceeds, ~30% IRR, and roughly a 4x multiple of money. Beyond the financial terms, the outcome validates our ability to plan digital infrastructure and data centers; we are applying that playbook to AtlasEdge. On the treasury front, we have been proactively addressing 2028 and 2029 maturities and have 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 approval of Wyre's fiber-sharing agreement with Proximus. Wyre can draw down a fully underwritten facility to repay intercompany loans with Telenet and provide a dividend as part of wider debt rebalancing; Telenet will use proceeds to repay $2.5 billion of 2028 maturities. At VodafoneZiggo, we refinanced $1.3 billion, leaving no 2028 maturities and reducing 2029 maturities. We remain opportunistic ahead of the spin-off, and as Mike noted, are on track to execute several 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. Both Liberty and Telefónica recognize leverage is above our 4-5x target and that credit spreads are elevated, but we believe investments being made will deliver EBITDA growth to deleverage the company back toward the target range. We are investing at elevated CapEx—22% of sales (25% excluding hardware)—which is significantly above telecom norms, to support mobile and fixed network improvements and digital IT transformation to realize cost reduction opportunities from AI. The small dividend projected to shareholders will be reinvested into the Netomnia transaction, a key transaction for Virgin Media O2 to keep investing in its fiber plan and help establish a credible second fiber network to compete with BT and unlock wholesale revenues. Both shareholders continue to consider inorganic opportunities to strengthen Virgin Media O2. We remain on track to deliver this strategy and will update investors in February next year. Finally, on 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. We are upgrading our full-year corporate cash target from $1.5 billion to $2 billion, supported by EdgeConneX proceeds and the Wyre asset-backed loan. That concludes our prepared remarks for Q2.
分析師問答
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, thank you for taking the question. I will keep it to the UK. First, on the UK ARPU trends: in the past you have talked about declines coming from legacy revenue such as voice and TV. Today you characterize declines more as related to front-book price competition. Is that a fair characterization? If so, do you think we are at trough ARPU and trough service revenue declines right now, or could things continue to get worse in the second half given the level of competition in the market? Second, on volumes: historically when you've had sub losses in markets like The Netherlands and Switzerland, you took the step of proactively rebasing customers onto cheaper tariffs to stabilize the base. Given the strong VodafoneZiggo net-add results, is that something you would consider in the UK as well, or will you tolerate the current subscriber losses in the near term provided ARPU doesn't fall too far? Thank you.
Thanks for the question. When we set guidance for 2026, we expected the market to be very competitive. Remember, about 70% of the service revenue guidance of minus 3% to minus 5% was expected to come from fixed consumer, which is now kicking in. The market is indeed more competitive: compared to Q2 2025, the average selling price in the market is down about 4%. Regarding the 4.6% ARPU decline we reported, the biggest driver is our own prevention activity—not radical recontracting but targeted actions. We have built a sophisticated retention machine and now a prevention machine, so the ARPU decline is largely driven by targeted prevention offers. Over 80% of our customers are on contracts with significant remaining term. We will continue this approach. Whether this is the worst of it is hard to predict: the market is very active and there are promotions coming from Openreach that require Ofcom approval and could kick in from October, which may increase competition. If those promotions do not kick in, I would expect the same competitive level and then our prevention efforts should help further. I hope that helps.
Your next question will come from Robert Grindle with Deutsche Bank. Robert, your line is open.
Hi, everyone, and thank you. Well done on getting the BCA approval—looks like it took a bit longer than you might have expected. What is the timeline from here for the fiber collaboration and the separation of Telenet? Alongside that, the monetization of Wyre: would you hope to announce monetization in 2026, or is that pushed into next year because things have taken a bit longer? Thanks.
Thanks, Robert. It has taken a while to get here, but it's a foundational building block and it opens up many next steps. Telenet is already operationally split; Wyre and Telenet have been separate for a while and we have reported them separately. The BCA approval allows us to rebalance the capital stack between the two entities and proceed with the sale of a stake in Wyre, which is well underway. We have a dedicated team and advisers working on that transaction and will proceed diligently through year-end. It is possible we could conclude that transaction by year-end, but it may slip into Q1. This is one of many things the BCA approval unlocks, all of which are positive and help accelerate timing on the Ziggo Group spin.
For clarity, the banking process was supposed to take place next week, and then Wyre will access the €4.35 billion of Wyre financing to repay intercompany items and support the dividend and rebalancing. That should help execute the wider debt rebalancing plan.
Your next question will be from Polo Tang with UBS. Polo, your line is open.
Thanks for taking the question. A couple on VodafoneZiggo and broadband. When will you be able to start offering broadband in the Delta fiber footprint? Also, what had the biggest impact in helping stabilize the VodafoneZiggo broadband base? Was it ESPN content offers, pushing harder on recontracting customers, the Odido data breach tailwind, or something else? Do you expect improving or positive net adds going forward, or is stable a more likely outcome? Thanks.
Hi, Polo. On Delta: we are planning to roll out in the Delta footprint we operate in during the second half of the year; we're not far from that and expect to see it appear in our numbers in Q4. On stabilizing the broadband base: it's not one thing but a sequence of actions over the last six quarters. These include bringing our front-book pricing in line with the market, investing in the core proposition, increasing speeds—we are the only operator offering 2 Gbps across most of the country—differentiating with a Wi-Fi guarantee, launching the ESPN bundle, and changing our marketing to focus more on connectivity and competing harder than before. As a result of these pillars, we are pursuing sustainable growth momentum and expect to continue to grow through the second half of the year.
Your next question will come from Nick Lyall with Berenberg. Nick, your line is open.
Hello, thanks. A follow-up on the UK: what makes you confident this is not a long-term decline in ARPU? Your pricing is still quite a bit above BT's and substantially above the AltNets. Lutz mentioned many customers are locked in on contracts, but why should you be able to sustain this pricing point? Is it fiber rollout, or something else, or is this potentially a longer-term ARPU decline? And Charles, when you mentioned inorganic options in the UK, were you suggesting potential acquisitions as opposed to disposals to reduce debt? Thanks very much.
We and Telefónica are firmly behind Virgin Media O2 and committed to the business. We are investing at elevated levels to secure long-term competitiveness and are prepared to pursue inorganic moves, whether buying or selling, to strengthen the company. We have done transactions like O2 Daisy and Netomnia in the past; it's not a statement about a specific deal today but about the toolkit available to us. We'll provide an update in February on the next phase.
I would add that the Netomnia deal is an example of an inorganic transaction we believe is beneficial to VMO2 from both credit and equity perspectives. 'Inorganic' includes a range of actions beyond cost reduction or revenue programs. There are many levers we can use.
To expand on that, we have three strong brands—Virgin Media, O2, and Giffgaff—targeting different customer segments. We have launched Giffgaff Broadband and are gaining traction. On average, every second household is a customer of ours, but we have penetration of about one product out of three on average, so there's room to grow cross-sell. We believe the combination of our brands, strong mobile and broadband connectivity, and differentiated services will allow us to deliver good value for money and sustain our position, but we must be prepared for continued competitiveness.
Your next question will be from Ulrich Rathe with Bernstein. Ulrich, your line is open.
Thanks. My question is on the quantification of AI cost benefits. How confident are you that you can retain these benefits? Industry cost benefits can diffuse quickly; consultants like McKinsey are a mechanism for diffusion. What are the reasons these cost benefits should be durable for the bottom line over the longer term? Thanks.
If you mean durable and persistent: I think both apply. We're seeing benefits from both internal AI implementations and supplier-driven offers. First, organic, self-driven efficiencies are already underway across the group—every operating company and growth business is implementing solutions to become more efficient. Second, the trend is only moving one way: models are getting smarter and cheaper, and more companies are developing scalable solutions for telcos. We are early in cloud migration—only about 20-25% of our business is in the cloud, meaning 75-80% is still on-prem—so there is significant runway. We are pressing hard to be ambitious because there is no reason not to be. The real challenge is not the technology alone but organizational change: operating models, talent, and software to implement step-change improvements. We are taking that seriously and are confident these benefits are real and sustainable as we continue to apply AI across more areas over the next two to three years.
Your next question will be from Matthew Harrigan with Stonix. Matthew, your line is open.
Thanks. On the industrial implementation of AI: do you expect a noticeable inflection point in 2028–2029 or is it a gradual improvement? Also, you talked about quantifiable cost savings. On the revenue side, were those addressed by McKinsey and Google as well, and is that kept more confidential because it is harder to realize and you don't want to be overly aggressive on revenue assumptions?
We expect this to be a gradual process rather than an instant change in a single quarter. It will accelerate over time as models and implementations mature. On revenue and CapEx benefits: those are tangible and being pursued, but they generally do not reach the magnitude of the OpEx savings shown on our slide. We're implementing revenue-driving tools now—Lutz's personalization engine is already delivering churn reduction and next-best-offer benefits. We take a one-piece-at-a-time approach because transformation requires the technology and organizational capability to implement it effectively. Enrique, do you want to comment on token costs and economics?
Sure. We, like others, are watching the evolution of token costs and resulting benefits closely. We have been disciplined in applying token usage against clear business cases that produce net benefits. While token usage and related costs are increasing in some cases, we do not see a material issue because our deployments are tied to economic cases that generate net positive outcomes. This will continue to be an ongoing story, but we see significant net benefit even accounting for token costs.
Your next question will be from James Ratzer with New Street Research. James, your line is open.
Good afternoon. Telefonica has announced a major cost restructuring in Germany and has appointed a new CFO at Virgin Media O2. Given Telefónica's actions, do you see scope for similar radical cost reductions at Virgin Media O2? Also, you raised the top-co cash target to $2 billion—would you consider injecting any of that cash back into Virgin Media O2 to help deleverage the business? Thanks.
Thanks, James. It's premature to discuss capital allocation specifics. We think the business is generating free cash today and can generate significantly more in the future. On cost reductions: that is certainly something we are looking at. We are in the business planning phase, with Lutz and the team developing long-range plans. When we speak of organic and inorganic tools to drive free cash flow and reduce leverage, that covers real options we will consider. Charles, anything to add?
The business is on track with the plan set out at the start of the year, and guidance has been reconfirmed. We are working through the planning exercise and understand leverage is outside the target range; we take that seriously. Give us time to continue working with management on the right next steps, which could involve cost reductions, and we will come back to investors in February.
Your next question will come from David Wright with Bank of America. David, your line is open.
Hi, thanks. I wanted to ask about the accounting change at VMO2 related to amortizing commissions over a longer period. It seems counterintuitive given increasing net losses and higher churn; why extend the amortization period in that context? Is this a one-off impact or should we expect a run rate effect to support EBITDA? And does this adjustment sit within the EBITDA guidance or was it anticipated when you gave EBITDA guidance? Also, Charles, you mentioned an update in February—should we think of that as potentially more material than routine planning? Thanks.
On accounting: accounting estimates are revised routinely based on facts and aligned with our auditors. It may seem counterintuitive in the context of market competition, but the revisions reflect our real-life experience and are the appropriate accounting treatment. It has some impact on EBITDA; it likely wasn't fully anticipated in original guidance, but it's not a material swing. The key metric we focus on is free cash flow, and this is a noncash accounting item. As for February, it's our routine annual update; nothing sinister or extraordinary is implied.
To add: when we do significant recontracting or prevention activity, we sign customers to new contracts and pay commissions for that. Those commissions are then amortized over the new contract lifetime. So if you combine higher prevention and recontracting activity with the accounting treatment, the outcome on amortization makes sense. In prior years, the accounting worked the other way; these items can swing in either direction and are relatively small in the broader context.
That concludes our question-and-answer session. I will now pass the conference back over to Mr. Mike Fries for any closing remarks.
Great. I'll keep it brief. Thanks for joining us. We appreciate your time. There's a lot of information to digest, and you know where to find us if you have further questions. It will be a busy summer across the group, particularly in Benelux, so stay tuned for announcements. Speak soon, and 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 have a good day.