Virgin Media concentrates its attentions on broadband market

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The Independent Online

Virgin Media has backed away from its losing battle with Sky in the premium pay-TV market to pursue growth in the broadband market, a move that acting chief executive Neil Berkett is confident will attract more customers to its "quad-play" offer.

The cable television and broadband provider has had a tough year, coming off second best after a bruising battle against Sky. The collapse of talks to take the company private in the wake of the credit crisis, and the departure of its chief executive over the summer, left the impression that the cable company was in turmoil.

Yet the business is showing signs of recovery. A strong performance across all of its product lines in the three months to September drove an increase in its customer base for the first time in five quarters. The company added a net 13,000 new customers, compared with a decline of 117,000 in the first half of the year and a drop of 70,000 subscribers in the previous quarter on the back of the spat with Sky.

Mr Berkett said that despite its problems earlier in the year, the latest quarter proved to be the best since the merger of NTL, Telewest and Virgin Mobile to create the enlarged company. "It really was a super performance. It's an inflection point and the first step on the way up," he said.

Mr Berkett was pleased that the company had slightly reduced churn, the rate at which its customers defect to its rivals, as the company refocuses on keeping its existing customers as much as acquiring new ones. However, by offering discounts to Virgin customers set to leave the business, the company took a hit to its average revenue per user (ARPU) rates, which took the shine off its performance.

Despite adding 20,000 new television customers over the last quarter, Mr Berkett said that the company is going to focus on the high-growth broadband market, as opposed to continuing its fight against Sky in the premium pay-TV market. "We are redirecting our energy toward high-speed internet so broadband becomes the hero product in the quad play," he said. He stressed that the company is not walking away from the premium pay-TV market, but instead will look to emphasise its strength in the broadband market, where its cable network may be able to deliver faster speeds than its rivals. Virgin is currently testing speeds of up to 50 megabits per second.

Mr Berkett said that Sky's dominance in the pay-TV market, and the way it charges for its premium content, means that it is difficult for Virgin to make money, a situation he described as an "uneven playing field". The company is in talks with regulators about Sky's alleged dominance in the pay-TV sector.

Michael Williams, an analyst with Citigroup, said the third quarter could be the time when Virgin "stopped the rot" in terms of shedding customers, but now the company has to focus on improving its ARPU, which could prove challenging given the competitive intensity in the UK. "At the very least, Virgin Media's results indicate that it is prepared to stand and fight – this should be seen as a warning sign for the overall market," he said. However, analysts at Cazenove said that the company's weak financial performance and near-£6bn debt could limit its ability to compete in the long term.