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Video services

Liberty Spies Greater Virgin Synergies

Liberty Global Inc. believes the synergies it can achieve from the full integration of U.K. cable operator Virgin Media are "expected to be significantly higher than our original estimates," stated CEO Mike Fries in the company's second quarter earnings statement.

John Malone's Liberty completed its stock and cash acquisition of Virgin Media on June 7 and has since undertaken a "detailed review" of its synergy targets, leading it to identify greater potential savings. When the takeover deal was first announced in February, Liberty Global, which has operations in 12 countries across Western and Eastern Europe (plus businesses in Chile and Puerto Rico), noted that it expected to achieve $180 million in operating and capex synergies. (See Liberty Makes $23.3B Play for Virgin Media.)

That's the good news for Liberty Global. Not so good is that Virgin Media's revenues appear to have flatlined. The U.K. operator published separate, standalone details for its second quarter performance that showed its revenues almost exactly the same as a year ago at £1.03 billion (US$1.56 billion), while its operating profit was just £67 million ($101 million).

Virgin Media's core residential cable service unit (digital TV, broadband and voice) isn't the problem, as its revenues increased by 4.2 percent year-on-year to £740 million ($1.12 billion). The main problem lies with the business services unit (Virgin Media Business), which registered an 11 percent year-on-year decrease in revenues to £148 million ($224 million), while the mobile services unit also reported a near 6 percent dip in revenues to £124 million ($188 million).

So while Virgin Media will provide a significant boost to its top line and to its subscriber base, Liberty Global will want to see that contribution growing. Focusing some attention on the business services division looks like an obvious thing to do, which is perhaps why Liberty Global has just announced a new leader of Virgin Media Business -- Peter Kelly, who has just spent five years as director of Vodafone UK's enterprise division, will become managing director from Sept. 16.

The impact of the U.K. acquisition will become clearer once Malone's outfit can report consecutive quarters with Virgin Media on board: Liberty Global's second quarter revenues of $3.16 billion included only 23 days of revenue contribution ($401 million) from the U.K. cable operator. Costs associated with the takeover, though, did push Liberty Global into the red, as it reported a second quarter net loss of $11.6 million compared with a net profit of $701.6 million a year ago.

What's clear already, though, is that the U.K. operation is a significant addition to its new parent's assets: Virgin Media has boosted Liberty Global's customer base by almost 25 percent, adding nearly 4.9 subscribers to take the total to nearly 24.5 million. That makes the U.K. Liberty Global's second biggest market by subscribers behind Germany, where the company's local operation, Unitymedia KabelBW, has just over 7 million customers (though most of these are legacy analog TV subscribers).

And those British customers like the top end services on offer from Virgin Media, now lead by Tom Mockridge. Of Virgin's 4.3 million cable broadband customers, 2.8 million have signed up for the super-fast options (30 Mbit/s or faster) and the operator has been upgrading its 100 Mbit/s customers to a new 120 Mbit/s tier. And of its near 3.8 million TV service customers, 1.7 million now have a TiVo set-top box, which provides live and on-demand TV as well as some Web-based services.

And it seems likely that Liberty Global will look for other ways to add to its next gen broadband and video subscriber base in Europe: Malone recently tried to boost his company's German holdings further with another acquisition but lost out to Vodafone Group plc. It seems unlikely that he won't now look elsewhere for further takeover targets. (See Euronews: Vodafone Strikes €7.7B Kabel Deal.)

— Ray Le Maistre, Editor-in-Chief, Light Reading

Ray Le Maistre 8/2/2013 | 11:13:10 AM
re: Liberty Spies Greater Virgin Synergies The Virgin acquisition HAS to work for Liberty, and that means all parts of the operation, including Virgin Media Business. It has the network to do well in the Ethernet services market - I think it needs to be more aggressive in the cloud services space.
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