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Optical/IP

Sky Falls on Virgin's Head

11:30 AM -- Not a lot is going right currently for British cable giant Virgin Media Inc. (Nasdaq: VMED), which is still known to many (including this customer) as NTL.

Its main consumer cable business is losing customers, its mobile business, Virgin Mobile Telecoms Ltd. , is losing customers, and its future ownership is uncertain. (See Virgin Media Extends Talks, Virgin Lures Liberty, and Carlyle Eyes Virgin.)

Oh, and it's losing money. Today it reported a net loss (its eighth in a row) of £119 million ($243 million) from revenues of £995 million ($2 billion) for its second quarter. And while those revenues are up on last year, that's only because of the income from its now integrated Virgin Mobile business. Without the mobile sales, revenues are down. (See Virgin Media Reports 2Q07.)

And one of the main causes of its current angst is its TV channel licensing spat with Rupert Murdoch's satellite broadcasting and broadband behemoth Sky , which has been a particularly sharp thorn in the cable operator's rear end during the past year. (See Virgin Media Files Against Sky, Virgin Media Slams Sky, NTL Fancies TV Merger, Sky Buys ITV Stake, NTL Abandons ITV Bid, and OFT Probes Sky's ITV Stake.)

And to rub salt in Virgin Media's wounds, BSkyB recently announced pretty good annual results and a dividend for its shareholders. (See BSkyB Reports Full Year and Virgin Media Slams Sky.)

The cable firm admits that one of the reasons it's losing customers is the withdrawal of some of BSkyB's TV channels. Virgin Media's consumer cable business reported 262,200 disconnections during the quarter, and 191,900 new connections, for a net loss of 70,300, nearly double its net customer loss during the first quarter. "Customer losses included an estimated 40,000 due to the impact of Sky's removal of its basic channels from our platform on March 1, 2007," notes Virgin Media today.

The cable company believes the negative impact of the loss of those channels, which include popular TV shows such as Lost and The Simpsons, is mostly over, and expects to report customer growth in the second half of the year.

But the real test for Virgin Media comes in the current quarter as the British soccer seasons kicks off again.

The cable company has put together an attractive package of live soccer games and highlights, and is launching its own dedicated sports news channel to replace one of the channels BSkyB withdrew, the highly popular Sky Sports News. (See Virgin Media Gets Sporty.)

Now, though, Virgin media doesn't only have BSkyB to contend with in terms of attracting soccer fans, as BT Group plc (NYSE: BT; London: BTA) is also ramping up its marketing around its IPTV service, BT Vision, and has also put together a package aimed at soccer-mad customers. (See BT Talks Google, IPTV & Collaboration.)

The next six months look critical for Virgin Media, and a lot will depend on whether it can score a hit with sports fans.

In the meantime, it can take comfort from at least one thing -- its share price is up by $0.82, about 3.5 percent, to $24.30 today following its earnings conference call.

— Ray Le Maistre, International News Editor, Light Reading

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