Virgin: stop whinging and deal with the debt
Sky battle self-inflicted
TV and telephony
Virgin Media appears to have done extremely well attracting TV customers in the first quarter with 36,000 net adds on marketable homes of 12.7 million. BSkyB added 51,000 TV customers in the UK and Ireland on marketable homes of 26.8 million.
In fact, Virgin Media added 75,200 digital TV customers - more than Sky added in a much smaller addressable area. However, Virgin Media lost 39,100 analogue TV customers. Sky can hardly be blamed for Virgin Media still having 309,000 analogue customers, even after a decline of 220,000 year on year.
I would argue strongly that Virgin Media should be upgrading its network and customers and then we could compare apples with apples in the payTV market.
Telephony is an area in which Virgin Media is struggling after losing 182,000 customers year on year. Unbelievably, Virgin Media doesn't blame Sky for its problems, but instead focuses on Carphone Warehouse launching its free broadband offer. I think this is also missing the mark. Instead, Virgin should be focusing on its own actions: to go a full 12 months without reacting and not expecting major churn is more than a little naïve.
I estimate that Virgin Media still has around 398,000 single play telephony customers, which is a drop of around 235,000 year-on-year: bear in mind some of these customers could have been upsold broadband or TV as well as others churning off the network.
Virgin Media was charging these customers £11 per month line rental plus call charges – obviously there were better deals in the market. These 398,000 telephony-only customers, and additionally the 309,000 analogue TV customers, represent the soft vulnerable underbelly of the Virgin Media customer base.
But what about broadband, which Virgin Media executives regard as their strongest suit?
Broadband: a bright spot
Someone on the analyst call remarked that the Virgin Media net additions in on-net broadband are quite low as a percentage of the overall market, at only 89,000. I'm not so sure. The broadband penetration of homes passed, at 26.7 per cent, is actually really good, and I think cable broadband must be outselling DSL in most common areas. I tend to agree with the Virgin Media execs who say that broadband is potentially the Virgin Media ace in hole, but I am a little concerned that it will lose the advantage over time through a lack of investment in capex.
First of all, Virgin is keeping quite mum over the roll-out plans for docsis3, but making lots of noise about 50meg to the home. It seems obvious that in its current state Virgin Media can't afford a rapid nationwide rollout of docsis3 technology to the UK.
Secondly, I am concerned about the recent capping applied to heavy downloaders. In a scenario where there is no capacity constraints, no capping would be required, and obviously caps destroy the urban myth that the cable network is magically different than the ADSL network. To be fair, Virgin Media caps are still probably the least restrictive of all consumer ISPs in the UK.