European cable group Liberty Global has lowered targets for the year after running into problems in the fiercely competitive UK market, where the company generates most of its revenues, during the first three months.

In a statement issued over the weekend, Liberty Global Inc. (Nasdaq: LBTY) said it was now expecting its operating cash flow to grow by roughly 5% this year, having previously guided for an increase of between 6% and 7%.

The operator's Virgin Media Inc. (Nasdaq: VMED) business in the UK competes against UK fixed-line incumbent BT Group plc (NYSE: BT; London: BTA) and faces mounting challenges in the country's broadband and mobile markets.

Liberty said that Virgin's average revenue per user (ARPU) was "softer than planned" in the first quarter, blaming the effect of "discounting" and a fall in mobile revenues for the weakness.

While monthly ARPU in the UK and Ireland rose by 1.6%, to £49.99 ($64.81), compared with the year-earlier quarter, the increase was much less than the 4% growth rate that Liberty reported at its Belgian and German subsidiaries.

Virgin also reported a small number of mobile customer losses in the quarter.

Competition has grown in the market for "bundled" packages, combining fixed and mobile services, following BT's £12.5 billion ($16.2 billion, at today's exchange rate) takeover of mobile giant EE early last year. (See BT Restructures, Boasts Best Quarter in 7 Years.)

Operating cash flow also appears to have suffered as a result of increased marketing expenditure, with Liberty insisting that its investments should deliver better results in the second half of the year.

Overall revenues in the quarter fell 17.9%, to about $3.5 billion, compared with the year-earlier period, but were up 2.1% when "rebased," said Liberty.

That recalculation takes into account the deconsolidation of Liberty's business in the Netherlands, which was last year merged with Vodafone Group plc (NYSE: VOD)'s Dutch business, as well as negative foreign exchange effects linked to the weakness of the British pound. (See Vodafone, Liberty Global Form Dutch JV.)

Operating cash flow was accordingly down 19.5%, to $1.6 billion, but up 4.1% when rebased.

Reported revenues sank 10.8% in the UK and Ireland, to $1.5 billion, but rose 1.7% in underlying terms, according to Liberty.

Changes to the marketing and selling of mobile services were partly responsible for the slippage, said the company: Customers can now buy handsets independently of services contracts, with implications for the way that Liberty records revenues.

The UK revenue decline fed through to operating cash flow, which fell 12.9%, to $648.5 million on a reported basis, rising by 0.9% when rebased.

Despite the sharp declines in reported figures, Liberty managed to narrow its net loss to just $293 million from $334 million in the first quarter of 2016.

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Besides complaining about the financial performance of the UK business, the company drew attention to difficulties on Project Lightning, a £3 billion ($3 billion) expansion of Virgin Media's cable network that was revealed in February to have made less progress than previously indicated. (See Virgin Media Plots £3B Invasion of BT Turf.)

"Although we delivered 102,000 new premises at Virgin Media in Q1 and a total of around 700,000 homes to date, we expect that the management transition and related review is likely to result in a slower build pace than what we previously expected for 2017," said Mike Fries, Liberty's CEO, in a company statement. "We will provide an update after our second quarter."

When announced in early 2015, the overarching goal of Lightning was to extend Virgin's network to another 4 million UK premises by 2020.

At the time, the company's network was available to about 12.63 million homes. Two years later, it passes about 13.6 million.

Analysts have expressed concern that recent regulatory decisions affecting BT could undermine the investment case for Lightning.

Among other things, regulators have ordered the fixed-line incumbent to cut the wholesale rates it charges rivals for some of its superfast broadband services. The move could drive broadband retailers and customers toward fiber-based services on the BT network and hinder the take-up of Virgin's cable offerings.

Despite the pressure on earnings, Liberty claimed to have made good progress on customer growth across its footprint, adding 244,000 RGUs (or revenue-generating units) in the first quarter -- 40% more than in the year-earlier period.

That increase gives the operator more than 45 million RGUs across its entire European footprint, including 18.5 million video customers, 14.5 million broadband subscribers, 12.1 million using telephony products and 6.4 million on mobile deals.

With many customers using multiple products, Liberty's actual customer numbers edged up just 0.2% in the quarter, to about 21.9 million.

The Virgin Media business added another 162,500 RGUs in the first quarter, giving it about 13.2 million in total, but lost 6,600 mobile customers.

Through a wholesale deal with BT, Virgin uses the EE network to provide mobile services and claims to have about 3 million customers.

Liberty's evident desire to operate its own mobile networks in other markets has previously fueled speculation about a possible merger between Virgin and Vodafone in the UK. (See Vodafone in Asset-Swap Talks With Liberty.)

— Iain Morris, , News Editor, Light Reading