Virgin Media chief Lutz Schüler on why investing in customer service will reignite growth

Lutz Schüler may be close to Liverpool's league winning manager Jürgen Klopp, but has different goals of his own

Lutz Shuler, chief executive of Virgin Media  
Virgin Media's boss secured a £31bn merger with mobile phone operator 02 Credit: Mark Bassett  

Lutz Schüler cuts the sort of figure you might expect to see descending a decrepit grand staircase as he welcomes you to the night you have been forced to spend in a remote castle. Towering with brooding features and long dark hair, the 52-year-old looks like he might enjoy crushing a peasant rebellion in a forgotten continental microstate as much as he does running Virgin Media, Britain’s cable operator.

That imposing first impression is quickly punctured by a Teutonic charisma that is cheerily devoid of irony and occasionally flirts with goofiness. Schüler’s style invites comparisons with another of our most successful Germans, which he is keen to encourage.

“I know Jürgen Klopp quite well,” he says. “Obviously now he has won the Premier League and everyone wants to know him. But he has proven he can stay authentic. If you stay normal and keep to your values, you can work with a different culture with a different team and generate success. I’m trying to do the same thing.”

Schüler forged a friendship with the Liverpool manager when he was running Unitymedia, a German cable operator and sponsor of Borussia Dortmund, Klopp’s former club.

Like Virgin Media, Unitymedia was owned by Liberty Global, the US-listed European holding company controlled by the Colorado-based billionaire “Cable Cowboy” John Malone. Schüler, who spends his spare time windsurfing, steered the German operation through rapid expansion and a lucrative sale to Vodafone in 2018.

He was then dispatched to London to shake up the prize but drifting Liberty Global asset Virgin Media – the brand is rented from Sir Richard Branson, who has no stake in the business. That process has quickly led to a £31bn merger with the mobile operator O2, announced in early May and comfortably the biggest UK corporate transaction of the pandemic so far.

The unlikely partnership of O2 and VIrgin Media could shape the future course of the telecoms industry   

The combination will create an equal joint venture between Liberty Global and Telefónica, O2’s Spanish owner, that will aim to challenge BT as a provider of connectivity that blends home broadband and mobile services, a trend labelled “fixed-mobile convergence” in industry jargon.

“What I did at the start was create a new business plan and strategy with the Virgin Media team. I flew over to Denver and shared that plan with the Liberty board and obviously it was a bit different to the previous plan, because it had some more investment and commitment for the customer in it. But it was also promising some pay-off.

“It also had fixed-mobile convergence in it. The question was getting the timing right. It happened maybe a bit quicker than I had expected if I’m honest. But you go with the opportunity.”

The financial structure of the deal signals part of the reason behind the apparent rush. Telefónica, facing heavy debts and fragile pandemic markets at home in Spain and in Latin America, will get a £5.7bn cash payment out of new debt piled onto the joint venture. Projections of big sales boosts on both sides from cross-selling broadband and mobile services draw investor scepticism.

Schüler, however, declares himself a “big believer” in so-called revenue synergies, having sparked new growth in the existing and stagnating Virgin Mobile business in the last year.

Given O2 and Virgin Media do not compete very much and that BT’s comparable takeover of EE was waved through by regulators, few observers expect the proposed combination to hit hurdles. Nevertheless, there is nervousness on both sides that the deal could become a Brexit political football. Britain’s Competition and Markets Authority has signalled it would like to be in charge of the scrutiny process, but the EU holds sway until the end of December. Privately, Liberty Global and Telefónica would prefer it to be handled under Brussels‘ relatively speedy process.

For Schüler it all means he must effectively reapply for his job, up against Mark Evans, the chief executive of O2. The pair are currently working together on pre-merger planning, but both want to emerge with the top job and could not stay under the other.

Schüler rationalises the awkward situation by way of a lengthy anecdote about selection for the 2016 Great Britain women’s Olympic hockey team. In short, not everyone in the squad got to play for a gold medal in Rio. “Mark and I, we really support each other,” he says. “I challenge myself in an open way to be a supportive team player here, and so far it’s working pretty well.”

The decision over which executive will get to lead the combined company will be made by a board chaired by Mike Fries, Liberty Global’s chief executive, the son of a Hollywood producer who sings in a pub rock covers band. Telefónica’s interests will be represented by its chief executive José María Álvarez-Pallete, a thoughtful figure steeped in the Spanish corporate establishment.

“This is up to Mike and José María to decide,” says Schüler. “I think it’s a big decision for them and they will go through a very good process to make the right decision.”

He has spent most of lockdown in Germany but has bought a home on the Thames and recently came to London to “check it hadn’t sailed away”. Schüler knows London well from a 1992 stint as an intern at Co-operative Bank. After five months of partying with a wealthy American flatmate, who was interning at Lehman Brothers, he says he returned to Germany £50,000 in debt.

He is seeking a longer and more lucrative stay this time. In his favour, Schüler has worked for both Liberty Global and Telefónica, having previously led the integration of a takeover for O2’s German sister company.

On the other hand, Evans does have experience of cable in Britain from his time in the finance department of NTL, one of the forerunners of Virgin Media. Following an attempt to float O2 a couple of years ago, Evans also has more familiarity with the City. It could come in handy if, as is suspected, the combination with Virgin Media makes its way onto the stock market within a few years as Liberty Global and Telefónica look to cash out. For now, Schüler is continuing his effort to reignite growth at the cable operator by what he says is “getting it back to its roots” by investing in customer service.

“During the coronavirus crisis, we have done a lot of stuff for our customers, with more content and free broadband speed upgrades.

“We haven’t looked at the business case for these things. We have just said, well, we play such an important role in connectivity and connectivity is so important right now. We are one out of two networks in this country and we have to help our customers.”

The shift in focus seems to be delivering. Network expansion helped Schüler deliver Virgin Media’s biggest number of new broadband customers in four years for the second quarter. The addition of 25,000, compared with a loss of 6,000 last year, took its total past 5.3m.

Under Liberty Global, which acquired it in 2013 for £15bn, Virgin Media has sought to press home its infrastructure advantage by offering faster broadband speeds over the cable network, which BT and its wholesale customers, such as Sky, are unable to match over elderly copper telephone lines. However that edge is under threat as BT’s fibre-optic roll-out gathers pace. Some 20m homes are due an upgrade by the middle of the decade, and BT is likely to target areas covered by cable first. Virgin Media typically takes 45pc of the broadband market where it is available.

While Telefónica is challenged by debt, some analysts see this threat to margins as a crucial factor in Liberty Global’s decision to seek a merger now. “We are getting competition here,” Schüler andmits. “Obviously we want to win the competition and therefore we have to invest in speed and coverage.”

Schüler says other responses are also under consideration, including launching a basic broadband brand to protect market share in a price war or opening the cable network to wholesale customers, such as Sky, for the first time. “The merger means we cannot make a decision right now,” he says. “But we think if it gets approved quickly we can really build a national champion and a challenger to BT.”

Facing competition for his business and competition for his job, like his friend Jürgen, Schüler is out to win.