Virgin Media O2 reported a loss of £3.3 billion in 2023 after the company added a huge goodwill impairment to its balance sheets amid rising debt costs and tighter cash flows.

The telecoms giant has over £8 billion of loans linked to central bank interest rates such as SONIA. This has resulted in hundreds of millions of dollars in additional interest costs after interest rates rose by more than 5 percent over the past two years. The company’s average borrowing costs are now 5.2 percent, compared to 4.7 percent a year ago.

A company statement said: “We have recorded a non-cash goodwill impairment charge of £3.1 billion, primarily due to an increase in the weighted average cost of capital and the impact of broader UK macroeconomic conditions on estimated future cash flows.”

Virgin Media O2 said revenue from its residential fixed-line business fell 2.3% to £3.3 billion over the year as “spend on mid-range TVs and landline phones was optimised as household budgets came under pressure from the increased cost of living”. Total mobile revenue rose 0.6% to £5.9 billion as growth was impacted by the company’s “low-margin mobile phone revenues which moderated over the year”, while revenue from its B2B fixed-line business fell 2.4% to £554.0 million due to “pricing headwinds”.

During the year, VMO2 gained 64,000 new broadband customers and 47,000 new mobile customers.

The company said revenue could decline further in 2024, in addition to a forecast single-digit decline in profits.

The move comes at a turbulent time for European telecoms companies, with high inflation, rising interest rates and fierce price competition squeezing margins and increasing the cost of investing in infrastructure.

Virgin Media’s rival Vodafone announced plans last year for a £15 billion merger with operator Three. The deal is intended to create a “sustainable” operator with the financial ability to invest more in communications technology.

At the end of January, Vodafone announced that it wanted to either sell or merge its operations in Italy in an effort to increase its profitability.

Fierce competition in the Italian market has led to falling revenues and squeezed margins for Vodafone, prompting the company to “explore market consolidation in countries where it is not making adequate profits.”

Virgin Media O2 said it had invested more than £2 billion in fibre and 5G expansion in 2023. A spokesman added that the company’s debt would be swapped at a fixed interest rate, making the company immune to short-term fluctuations in interest rates or foreign currency movements.