Short term pain, long term gain - Virgin Media announces fourth quarter results

Steve Weller, Head of Communications Services at independent price comparison and switching service uSwitch.com, comments on the net loss of £122.1 million and 64,300 customers:

“It’s clear that Virgin Media has had to take a back step while it has consolidated its networks and operations and it has lost some customers in the process. However, if it succeeds in tying up new deals as quickly as possible and acquiring a strong LLU position this year, it has the opportunity to leapfrog Sky in customer acquisition early 2008.

“While Virgin Mobile is the weakest of the six mobile brands in the market, we are surprised to see it experience such a massive drop in customers –11,000 net additions in Q4 is just 1% of the 122,700 acquired in Q3. This has been attributed to price competition and a higher marketing spend from its competitors – so we should expect to hear Virgin Mobile shouting a lot louder this year.

“The very public showdown with Sky in the contract negotiations for the provision of Sky channels to Virgin Media customers is thankfully about to come to a head. This has been the most public contract re-negotiation the industry has seen for a long time and, while commentators and marketing teams may have secretly enjoyed the spat, our immediate concern is for the three million Virgin Media TV customers who could suddenly find themselves unable to tune into the next episode of Lost or 24 this week.

“Last week’s deal with Walt Disney BVITV to provide Lost series one and two this August won’t help the Virgin Media TV customers currently gripped in the midst of series 3, but is a good sign that new deals are proactively being sought. In the longer term, Virgin Media’s back-up plan to redirect the money normally pumped into Sky towards further content deals is a sensible strategy that will place it in a strong position to bid directly against Sky for compelling current content, that can be delivered via the Virgin Central platform.

“Today’s news that it is close to securing a wholesale local loop unbundling supplier is another signal that Virgin Media means business in consolidating its broadband customers. There have been rumours that its LLU partner will be Cable & Wireless – but the partner, whoever it may be, will enable Virgin Media to reach out beyond the 45% of households currently covered by its cable network and offer the wider population a comparable service in terms of content, speed and price. “

Weller concludes: “More good news for broadband customers is the announcement that speeds will reach up to 20Mb in June. If Virgin Media can deliver this promise they will hold the top position in the industry for the provision of the fastest speeds on a large scale.”