Virgin targets small business to take the fight back to BT

Move could boost revenues by two-thirds in five years

Hostilities between two of the UK's largest telecoms groups are set to intensify after Virgin Media today unveiled plans to target the small and medium business customers of rival BT. The move could boost revenues at the division by two-thirds in the next five years.

It marks an escalation of antagonism between the two companies after BT last month vowed to undercut Virgin on the price of its core next generation broadband to UK households

The relaunch of ntl:Telewest Business as Virgin Media Business comes as the group outlined a concerted march on the sector, offering what chief operating officer Andrew Barron calls "a clear alternative to BT". There is a sizeable market in play for both companies, as small and medium-sized enterprises (SMEs) spend about £18bn a year on IT and telecoms.

At the moment, Virgin has almost 60,000 SME and public sector clients, with revenues expected of about £600m. Industry sources believe that could rise to £1bn in three to five years. It provides contracts for groups including Hampshire County Council, the broadcasting infrastructure group Arqiva, and Terminal 5. Virgin hopes to attract more with its 50 Mbps fibre broadband network, which covers about half the country.

Mr Barron said: "This is another step forwards. We've been working in the business division for 18 months on getting the business processes to the right level. We've improved it dramatically. We can use the fibre network to differentiate ourselves."

The news that Virgin was to invest in the division came as a surprise to rivals, with many in the industry believing its legacy branding as ntl: Telewest was a clear sign the arm was to be sold.

"This shows it is an integral part of Virgin Media," Mr Barron said. "The ntl:Telewest name began to confuse people internally. People have questioned the division's future in the past. This removes doubt."

Virgin believes the demand is there, but industry insiders said it was a tough time to target small to medium-sized enterprises. "The SME market is suffering the worst in the recession so could be a tough sell," one said.

Virgin Media Business will compete with BT's business division, which makes up about 30 per cent of BT Retail's annual £8.4bn revenues, rather than BT Global Services, which targets multi-national corporations. BT Global Services yesterday announced it had won a three-year extension to its partnership with the Department for Work and Pensions worth at least £237m.

Today's announcement comes after BT revealed it was to challenge Virgin with a fibre network of its own. BT Infinity will be available to 4 million homes and businesses by the end of the year, and is looking to offer the service at a lower price than its rival.

It is likely to be questioned on broadband at today's third-quarter results, after revealing plans to open up its ducts to allow rival broadband companies to lay their own fibre. This came after the Conservatives said they would break BT's network monopoly. Next generation broadband has become a political football in the UK. Mr Barron said: "There is a raging debate over how we bring next generation broadband to the rest of the country. We are interested in creative ways to reach the have-nots."