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Virgin Media Banks on 100Mbit/s Broadband for Growth

October 29, 2010

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UK cable operator Virgin Media continues to rely on supremacy in the broadband speed arms race to bolster its position in the UK pushing ahead this week with launch of a 100Mbit/s DOCSIS 3.0 offer. The company's latest results show that broadband growth is slowing with 3.970m broadband subscribers at the end September 2010, 35,100 more than in the previous quarter but with net additions down against the 39,000 added in the same quarter last year. Total ARPU grew to £46.38 compared to £44.14 at the end of 2009 thanks to good uptake of bundled product. Triple-play penetration increased to 62.7 per cent and quad-play (with mobile) penetration increased to 11.5 per cent. Virgin's largely free VoD service continues to grow in popularity with 59 per cent of customers using the on-demand service and average monthly views of 73m, up 10.8%. HDTV is also proving popular with an additional 222,100 customers added in the third quarter to reach an stalled base of 1.42m HD homes. Overall Virgin had a positive quarter with total revenues reaching £978m, 6.4 per cent more than in the previous quarter and 14,100 new cable homes added overall. The new push around Sky's premium channels (recently made available at regulated wholesale pricing) may well have been a driver, with Virgin adding 100,000 premium customers in the quarter to boost overall uptake of Sky premium channels on cable to 18 per cent. But it wasn't all positive: churn increased to a massive 19.2 per cent per cent (annualised) as competition with rivals BT and Sky intensified. Cable telephony also continued its recent erratic trend with 14,300 net disconnects in the quarter compared to net additions of 16,000 a year ago.

The launch of Virgin's 100mbit/s broadband service shows the increasing demand among customers for higher broadband speeds, but also represents a strategic move akin to making hay while the sun shines. With BT already rolling out its new fibre network in key areas of the UK, Virgin's speed advantage may be short lived. Nonetheless the Q3 results show the UK's increased appetite for high speed services. At the end of September 2010 the number of customers subscribing to the top tiers (20Mb and 50Mb) increased by 40.7 per cent to reach 708,300, with 91,600 of those taking the flagship 50Mb service (an increase of 23.8 per cent over June 2010). Virgin claims that 100,000 customers signed up for the 100Mbit/s service on the first day of launch.  It will initially be made available to a potential 200,000 homes and will be rolled out to Virgin Media's entire cable footprint, covering up to 12.9m homes, by mid-2012.The 100Mbit/s service will be priced at £35 per month when bought as part of a bundle or £45 as a stand-alone product. All remaining 2Mbit/s customers are now being upgraded for free to the 10Mbit/s as the new 50Mbit/s is progressively rolled out across the country. With arch rival Sky still seeing returns from its HDTV investment and banking on 3DTV to at least maintain its HD growth, Virgin will have to play its broadband cards with care to continue to maximise returns from this key growth driver.

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