Virgin Media Sees Silver Lining
But behind the bottom line numbers there are signs that the cable operator, which goes head-to-head with incumbent telco BT Group plc (NYSE: BT; London: BTA) and satellite TV giant Sky in the highly competitive British communications and entertainment markets, is improving its operational health. (See BSkyB Reports Full Year and Euro Telcos Ramp Up IPTV Subs.)
Such improvements are vital if new CEO Neil Berkett is to steer the company in a positive financial direction. (See Virgin Territory .)
First, the company's net loss was widened by a one-time, non-cash goodwill charge of £366.2 million ($711 million) against the value of the Virgin Mobile (UK) business, which has 4.3 million customers, including 492,000 contract, pay-monthly subscribers.
Without that charge, the company performed better than expected, reporting an operating profit (before one-time charges, depreciation, and amortization) of nearly £333 million ($647 million) from revenues of £991 million ($1.93 billion).
In addition, it reduced the churn rate in its cable services business to 1.3 percent from 1.8 percent a year ago; added 54,600 new broadband customers to take its total to just over 3.8 million; and has increased its triple-play (broadband, TV, voice) penetration rate to 53.1 percent of its customer base, up from 45.2 percent a year ago. In total, Virgin Media has just more than 4.7 million customers taking one service or more.
The operator is encouraging customer "stickiness" through the ongoing enhancement and promotion of on-demand TV services, which now includes the iPlayer service from the British Broadcasting Corp. (BBC) . The cable firm said 10.5 million BBC shows were accessed during June using the iPlayer interface, contributing to the 38 million video-on-demand (VOD) views the operator is now averaging each month. (See Virgin Media Touts iPlayer.)
Moving up to Docsis 3.0
Now it's preparing to take the broadband battle to another level. Having already introduced 20 Mbit/s services (331,000 customers), and offering to upgrade all 4 Mbit/s customers (612,000 subs) to 10 Mbit/s for no added fee -- a process that is 70 percent completed -- Virgin Media says it's on course to launch its Docsis 3.0-based 50 Mbit/s service before the end of this year, double the present rate possible from rival ISP services using ADSL2+ technology, which can achieve 24 Mbit/s at its peak. (See Virgin Media Boosts Broadband.)
It looks unlikely, though, that the cable operator will meet its target, stated in late January, of making that super-fast broadband service available to 9 million U.K. homes (more than one third of British households) by the end of this year.
To cope with the additional access capacity upgrades, Virgin Media is planning to pump up its core network capacity too. (See Virgin Trials 40-Gig.)
And the cable operator is keen to stress the broadband speed advantage it believes it will continue to maintain over BT in the coming years: As BT builds out its increasingly fiber-based access network during the next four years, Virgin Media says it will always manage to offer better top-end downlink speeds. It expects to have boosted its high-end broadband service to 200 Mbit/s by 2012. (See BT Unveils $3B FTTx Plan and BT's FTTH Conceit.)
The cable operator did not comment on speculation that it's looking to offload its enterprise services division. (See ntl:telewest Rumor Resurfaces.)
Today, Virgin Media's share price is down $0.38, about 3.3 percent, to $11.03 each, giving it a market capitalization of just over $3.6 billion.
— Ray Le Maistre, International News Editor, Light Reading