Mobile hit puts Virgin Media into the red

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The Independent Online

Virgin Media beat under-lying profit expectations in the second quarter, excluding a £366m writedown of its mobile phone business.

Revenue for the period was £991m and operating cash flow was £333m – some £10m higher than the consensus of analyst predictions – although the Virgin Mobile goodwill impairment took the company to an overall loss of £333m.

Neil Berkett, the chief executive, said the writedown was an accounting issue and should not detract from progress in his strategy, which is to establish Virgin Media as a premium brand, replacing low-end easy-come-easy-go customers with "quadplay" customers buying cable TV, broadband, mobile and fixed-line telephony.

"The writedown is primarily an accounting transaction and has no impact on shareholder value or cash," Mr Berkett said. "Virgin Mobile adds value because customers who take all four products are more valuable to us because they stay longer, but the account-ing rules don't take account of value created in other areas of the business." Virgin Media lost 19,500 net subscribers and average revenue per user also fell slightly, but the number of customers with at least three products shot up by 53.1 per cent and churn was just 1.3 per cent, down from 1.8 per cent last year.

With the customer base stabilised, the next stage of the strategy is to grow the business – particularly in the next-generation broadband market, which it currently leads. Virgin Media's 50 megabit service, which will start rolling out in the autumn, will be available to 40 per cent of customers by Christmas and everywhere that has cable infrastructure by April next year.

The figures are reasonable, but the company is still a long way from being a success, according to Martin Mabbutt, an analyst at Nomura. "Virgin Media is spinning the story about the major growth potential created by its broadband capability and that will be the issue on which the company stands or falls," Mr Mabbutt said.

"The question is whether it can leverage its supposedly superior network to attract higher revenue from people wanting higher speed broadband."

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