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Virgin faces customer exodus over Sky battle

Round one

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Virgin Media admitted today that its battle with Sky over TV rights made it suffer in the broader convergence war.

During the firm's quarterly earnings call, chief executive Steve Burch told investors that although the impact of losing shows like 24, Lost, and The Simpsons was not big in the first quarter, he was expecting more trouble over the next three months.

"We're not really sure what the impact in Q2 will be, but we're flagging up the possibility that TV additions may not be as strong and could be negative," he said.

Virgin only lost the Sky channels on 1 March, and disconnections take 30 days. To have an impact on these results, which run to 31 March, angry customers would have had to quit Virgin before the switch-off.

In Q1 the overall five million-plus customer base across TV, mobile, broadband, and home phone shrank by 47,000 customers. Despite a £25m marketing and rebrand splurge, Virgin's consumer revenue slid to £637.3m from £644.4m the previous quarter. It blamed the slip on its shrinking subscriber base, and a drop in how much each customer spends on average (ARPU).

Burch fingered Virgin's fixed line telephone arm as being particularly feeble, and weak enough to scratch out the boost in ARPU which higher penetration of triple and quad-play bundles should have delivered.

Business revenues dropped too, from £168.8m in Q4 2006 to £163.0m for the first three months of this year. The combined result was an operating loss of £15.3m, compared to a £9.2m profit last quarter.

There were some diamonds in the rough. The broadband spike of Virgin's four-pronged assault performed better, adding 97,600 new punters in Q1. The rollout of 20Mb/s and trials of 50Mb/s continued, which Virgin noted is an example of its "inbuilt advantage" as cable monopoly holder. BT's 21CN will max out at 24Mb/s for customers lucky enough to live close to an exchange, and will not be complete until 2011. The national telco has complained that it is not economical to lay faster lines because regulations force it to open its network to competitors.

More than 3,410,000 broadband connections are now supplied over cable, compared to about 3.2 million dealing with BT Retail. Virgin's recent decision to roll out stringent bandwidth throttling across the national network could drive departures, however.

Virgin also managed to reduce its churn slightly, from 1.7 per cent to 1.6 per cent, though several observers have noticed this is still some way off Sky's customer-retention rates.

Virgin maintained its stance over the TV dispute with Sky, which is now headed for the High Court. "Should Sky want to come back and negotiate in good faith we are open to that," Burch said. The clash over how much Virgin should pay for Sky channels has been interpreted as first blood of a long campaign in the converged services market.

Virgin's earnings report is here. ®

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