Sky and Virgin Media trade insults as deadline passes

Virgin Media and BSkyB continued to trade insults yesterday as the deadline approached to agree a deal for the carriage of Sky's channels on the Virgin cable network.

Reporting fourth-quarter results, Virgin revealed that it had made a last-ditch offer for the dispute to be settled by an arbitrator but this was immediately rejected by Sky. The two companies cannot agree on a price that Virgin must pay to carry's Sky's package of basic channels, which includes Sky One and Sky News. The current arrangement ended at midnight last night.

According to Virgin, Sky is asking for a 100 per cent price increase, while the satellite group insisted the rise was 20 per cent.

Steve Burch, Virgin Media's chief executive, said: "For too long, cable allowed Sky to have its own way. That's not going to happen any longer ... they never really intended to negotiate in good faith."

Virgin Media added a new dimension to the row yesterday by calling for a previously signed deal, on the carriage of Virgin channels on Sky's satellite network, to be renegotiated. Virgin's stations include Living, Bravo and Challenge.

According to Mr Burch, that deal, inked a month ago, was signed "under complete duress" and involved an 85 per cent reduction in price. According to him, the difference in the price between the value assigned to Virgin's channels by Sky and Sky's own valuation of its channels was 1,700 per cent.

The dispute will hurt both sides financially. Sky has indicated that its annual loss, if its channels were not available to 3 million cable customers, would be around £60m. Virgin said it stood to lose £45m. There are fears that some Virgin customers may defect to Sky to continue to receive its channels, which include Lost and The Simpsons.

Mr Burch said: "Sky has shown a willingness to take short-term hits to harm us in the long term. This is the behaviour of a monopolist."

A telephone call yesterday between Mr Burch and James Murdoch, the chief executive of Sky, failed to resolve the issue. Unless a deal is reached, Sky is due to pull its channels from the Virgin platform from today.

A Sky spokesman said: "With less than 12 hours before our existing agreement expires, Virgin Media has declined to re-enter talks and is now seeking to re-open existing agreements. Trying to involve a third party and unpick the agreement for Virgin's channels on the Sky platform would be an unnecessary delay and distraction. Our debate with Virgin comes down to how strongly you believe in the value of Sky basic channels."

Virgin Media's results, for the last three months of 2006, showed a net loss of 37,000 customers. Average revenue per user edged up slightly and the operating profit came in at £9.2m, compared with a £19.4m loss in 2005. However, the bottom-line loss from continuing operations ballooned to £88.1m, from £56.2m previously.