Market Insight

Virgin Media invests £3 billion to boost broadband coverage by a third

February 13, 2015

Martyn Hannant Martyn Hannant Manager – Research and Analysis, Service Providers & Platforms

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Virgin Media has announced plans to invest £3 billion ($4.6 billion) in extending its UK high-speed cable broadband network, increasing its reach by almost a third.

  • Virgin, recently acquired by European cable giant Liberty Global, plans to extend its high-speed cable coverage from 13 million homes to 17 million by 2020.
  • Virgin says the investment, dubbed “Project Lightning”, will create 6,000 new jobs, of which 1,000 would be apprenticeships, and could be worth up to £8 billion to the UK economy.
  • The company also announced its fourth-quarter revenue increasing by 3.6% year-on-year (y/y) 2014 to £1.8 billion, while RGUs increased a record 113,000 in the quarter to reach 12.5 million at the end of 2014.

Our analysis

The investment represents a fresh assault by Virgin Media on the UK market following its buyout in 2013 by Liberty Global, the owner of 12 cable operators across Europe including the UPC group. Virgin says the investment is the biggest in broadband infrastructure in the UK for more than a decade, and threw down the gauntlet to its rivals, saying that connected homes will enjoy broadband speeds of up to 152 Mbps, which it claims is “…at least twice as fast as the fastest speeds available from BT, TalkTalk and Sky”. Liberty Global also noted that it is preparing trials of DOCSIS 3.1 cable technology across Europe later in 2015, which could increase speeds to up to 10 Gbps when it is fully deployed on its coaxial cable networks.

Virgin Media estimates its investment will increase its homes passed to approximately 17 million by 2020. At the end of 2014, TV subscriber penetration of Virgin’s 12.6 million homes passed stood at 29.8%. This penetration rate has been fairly consistent at around 29-30% over the last five years, steadily growing from about 25% in 2004. If a similar take-up rate of TV services from the additional homes passed is assumed, the infrastructure investment will potentially give Virgin access to around 1.2 million more TV homes by 2020. The competitive advantage over key rivals Sky and BT that Virgin will hope to harness for these households is its increased internet speeds of 152 Mbps.

Virgin Media has also published its results for the final quarter of 2014, which saw significant growth across its TV, internet and telephony subscriber bases in comparison to Q4 2013. Total unique cable homes increased 69,000 in the quarter to 5,016,500 – a 2.2% increase on its customer base at the end of 2013. The operator has attributed this improvement to subscriber retention promotions across the year and the launch of its Big Bundle multiplay offerings. 2014 especially saw an improvement in TV for Virgin, with annual subscribers up by 10,700 – a turnaround in comparison to a 45,900 loss over 2013.

Virgin, which competes with BT, Sky, TalkTalk in the UK triple-play market, has been relatively quiet of late, watching as market leaders BT and Sky duke it out for control of premium sports rights in the UK. Both operators renewed their agreements at the start of 2015 for live rights to the football Premier League, with their combined spend increasing a staggering 70% to top £5 billion. BT has used these rights, along with the launch of two new sports channels, to push its Infinity fibre broadband packages, offering the sports channels for free to BT Broadband subscribers. The incumbent has also said it plans to launch trials of its broadband technology in the UK this summer, with a target of providing 500 Mbps to most of the UK within a decade.

BT has also launched an audacious bid for mobile operator EE, in a deal which could make it a powerful quad-play operator, in a market where the fixed and mobile sectors have been largely separate up until now. Both Virgin and TalkTalk offer MVNO services, with Virgin claiming 3.1 million subscribers at the end of 2014, while Sky has recently signed an MVNO deal with Telefónica’s O2 with plans to launch in 2016. O2 itself is in the process of being bought by Hutchison Whampoa, which owns fourth-placed UK mobile operator 3 UK, in a deal which could create a powerful new market leader.

The wave of consolidation and co-operation has left Vodafone, the third-placed UK mobile operator by subscribers, somewhat out in the cold, and casts further doubt on the operator’s own plans to launch its own consumer fixed broadband and pay-TV services in 2015. IHS has doubts as the whether the mobile operator will be able to make any significant gains in the increasingly competitive fixed-line sector, and Vodafone may look to acquisition to strengthen its fixed offering. TalkTalk is a possible target, but is weakened by its lack of network infrastructure, while gaining control of Virgin Media would be far trickier, given its ownership by Liberty Global. In December 2014 Vodafone denied media reports it planned to acquire the cable group.

Virgin has admitted that, most of its expansion will be filling in gaps in regions where it is already present, rather than bringing superfast broadband connectivity to underserved rural areas.  Virgin chief executive Tom Mockridge defending this, telling the BBC that it was BT's job to do more to bridge the so-called "digital divide", but the investment will be worth little to remote regions which struggle with the double-whammy of poor fixed Internet speeds and a lack of mobile data coverage. The UK government has set a target of bringing superfast broadband to 95% of UK homes and businesses by 2017. However, a recent report from the Environment, Food and Rural Affairs Committee has expressed concerns that rural communities are at risk of becoming the “have nots” in a superfast broadband world, and called for the government to set a target date for when the last 5% of premises will be covered.


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