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April 28, 2010
UK cable group Virgin Media added 38,300 new customer homes in the first quarter of 2010, boasting its strongest growth since the third quarter 2005 and its third consecutive quarter of positive growth. Virgin said a combination of high gross additions and low churn contributed to the strong performance, with broadband a driving force. However, the growth of TV customers was cloaked by a data re-appraisal that saw 49,300 analogue customers who will not be upgrading to digital removed retrospectively from the figures. Without the retrospective re-statement, Virgin would have shown a net loss of TV customers.
The company added 73,000 new broadband customers; 36,000 new TV customers (on a re-stated basis) and 32,000 new telephony customers. Sixty-two per cent of customers now take triple-play services with an overall average of 2.48 services per customer. Eleven per cent of customers take quad-play (with mobile). Annualised churn stood at 13.2 per cent and ARPU grew 5.3 per cent to £45.01 a month. The company increased capex during the quarter on the back of investment in extension of the broadband and TV network, denting free cash flow. Operating cash flow grew 14 per cent to £356m although revenue for the quarter was down against fourth quarter 2009, impacted by a drop in mobile and business income.
Virgin's latest results show that the company has turned a corner in generating sustained growth quarter-on-quarter. The operating performance, although overshadowed by rival BSkyB and boosted in part by a data re-statement, was relatively strong across all service offerings, with broadband clearly the star performer. Virgin said it would roll out a 100Mbit/s broadband offer by year end. The company also recently completed a debt refinancing round that the company claims leaves it with a 'fit for purpose' capital structure to support ambitions to lead the market as the digital provider of choice.
Virgin has had a run of positive news in recent weeks with the debt refinancing following Ofcom's decision to impose regulated wholesale pricing for access to BSkyB's premium movie and sport channels. BSkyB is challenging the ruling. Screen Digest believes that the impact of the ruling on Virgin's customer growth will be minimal, with the main plus being a reduction in operating costs. Virgin has put its energies into promoting broadband services (a core strength for the cable industry) as well as promoting heavily its Video-on-Demand and HD services, with the 12-channel HD service bundled into its largest TV package. Virgin added 77,900 HD customers in the quarter to take its HD base to 939,900. Although Virgin said it planned to boost its HD channel offer, Ofcom stopped short of imposing regulated pricing on Sky's HD movie and sports channels in its recent ruling, leaving Virgin to focus on adding HD content to its on-demand offering. Despite the regulatory overhaul, we believe broadband will remain central to Virgin's future growth.
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