Churn down but so is growth at Virgin Media

05 May 2009 | 15.23 Europe/London

Virgin Media’s quarterly figures released today show it is just as susceptible as competitors to the general slowdown in new broadband connections.

For the first three months of 2009 it added 47,300 additional broadband customers to its network, nearly half the 88,400 figure for the corresponding quarter in 2008.

The culprit would appear to be the oft-quoted slowdown in the housing market because in the same period churn levels reached an all-time low for the network of just 1.1% of customers (down from 1.2% previously). So, clearly far fewer people are moving house than in previous years and are instead sticking with the broadband provider they have.

Hence the television, telephone and broadband provider was able to point to its triple play penetration having risen to 57% of customers compared to 51% this time last year.

The company also attributed the reduction in net new broadband customers as being partly down to its concentrating its marketing efforts on its higher value 50Mb service, though its financials were vague as to how many customers had taken up its top tier service. The nearest analysts got to a glimpse of the success of the recent network upgrade was that three in four broadband customers were connected for the period at 10Mb or above packages, compared to one in five for the year before.

Looking towards Q2 of 2009 the company claims its upgrade programme, which is switching its remaining 2Mb customers to 10Mb connections from this month onwards, will help differentiate its service as a faster alternative to rivals (within its fibre optic network).

Despite the average amount each customer spends per month (across all three services) increasing by 34p to £42.29 – perhaps caused by a rise in triple play penetration from 51% to 57% of customers - losses for the quarter widened to £123m from £109m for the corresponding period a year ago. Hence the company is in the middle of restructuring plans involving 2,200 job losses (15% of its work force) in a bid to improve its cash flow by £120m per year by 2012.

The challenge ahead will be to keep average revenue increasing, grow its subscriber base (particularly within its new, higher value 50Mb top tier) as well as manage its high levels of debt at a time when job cut backs could potentially impact customer service.