NTL Losses Drop in Q3

Ahead of its merger with rival cable operator (Nasdaq: TWSTY), ntl group ltd. (Nasdaq: NTLI) is focused on operational improvements that will turn around its financials after having reported a drop in third-quarter net loss to £52.1 million ($92.55 million) from £95.6 million ($169.82 million) during the same quarter last year. (See NTL Cuts Q3 Loss.)

On a conference call with analysts, CEO Simon Duffy noted "2005 was always going to be a year of improvements" following a restructuring that "pretty much pulled the guts out of the company." Telewest saw average revenue per user (ARPU) begin to rise after its reorganization, and Duffy said NTL is on the same route. "We're starting on the journey in 2005 that they began in 2003."

For the quarter though, NTL's revenues were down 3.2 percent year over year to £482.7 million ($857.47 million) -- mostly due to lower revenues from its business division.

Business revenues were down by £15.8 million ($28.07 million), and £11.3 million ($20.07 million) of that reflects a loss in wholesale revenues from broadband ISP Virgin.net, which NTL has acquired and is therefore no longer a customer. Instead Virgin.net is contributing to customer revenues on the retail side.

In the residential division, NTL is focused on developing its triple-play penetration to drive up ARPU and reduce churn. The number of customers taking a bundle of TV, telephone, and Internet services increased by 21 percent during the quarter, bringing penetration to 25.4 percent. That compares with a rate of around 40 percent for Telewest. "What we're also doing then is adding a lot of singles and duals," Duffy said, noting many of those are broadband users.

The company added 165,600 broadband customers during the quarter and is bumping up its guidance for on-net broadband growth for the year from 20-25 percent to 25-30 percent. It now has a total of 1.72 million broadband users, the largest number in the U.K., and is looking at ways to convert those into triple-play customers. "Our rapidly growing broadband customer base provides fertile ground for cross-sell opportunities," enthused Duffy.

The operator is planning to launch a 10-Mbit/s service as its standard broadband offering during the fourth quarter and has been emphasizing its service bundles as an automatic upgrade path, not just for broadband but video-on-demand, HDTV, and personal video recording -- all of which are planned for next year. "We just marketed the hell out of the thing," Duffy said.

With the company in the middle of the merger process, the CEO said there's so much going on that the operator has "deprioritized" its plans for local loop unbundling, although "we still think it's a good idea."

So does U.K. satellite operator BSkyB Group plc, which recently acquired broadband provider Easynet with the intention of unbundling (NYSE: BT; London: BTA) and jumping into the triple-play business. Duffy brushed off analysts' suggestions that Sky will make a formidable competitor. "I don't want to underestimate Sky, but we're not trembling in our boots as a consequence," Duffy said. He noted that Sky has been highly successful at what it does, but now it's taking on something different and will have to learn all about "the joys" of running a fixed network, just like any new competitor. "I don't think Sky's going to fundamentally change the competitive landscape," he said.

Duffy expects the number of net customer additions to go down next year as the operator puts most of its energy into "cross-sell and up-sell" encouraging users to upgrade their packages and take all three services. NTL's also planning to switch off its analog TV signal to make room for HDTV and other high-capacity services and expects to lose some customers in the forced migration. "We will try to manage migration in a way that is least offensive to customers as possible."

NTL will likely end up with lower overall customer numbers, but plan for remaining users to be signed on to higher-value services, including mobile. "We absolutely believe that having a mobility offering would enhance our business, and would have all sorts of beneficial effects," Duffy said.

That comment follows Sprint Nextel's announcement yesterday of a mobile phone venture with U.S. cable companies, reflecting growing carrier interest in combating fixed/mobile substitution with quadruple-play services. (See Cable Firms, Sprint in Fixed/Mobile Deal.)

NTL shares were up $0.22 (0.36%), to $61.47 in trading today on the Nasdaq. Telewest reports its third-quarter results on November 10. The merger is expected to be completed in February, subject to regulatory approval.

— Nicole Willing, Reporter, Light Reading

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