Virgin Media To Focus On Broadband To Stand Out From Crowd

Under an interim CEO and having taken a kicking from BSkyB (NYSE: BSY) stemming from the loss of Sky channels, Virgin Media (NSDQ: VMED) appears to be stepping back from TV and its core quad-play strategy to focus primarily on its broadband strategy. Neil Berkett conceded to The Guardian: “Despite our technical advantage, we are still not really standing out from the crowd.” Virgin’s broadband subscriber growth was slower than its rival’s in Q2 (up 51,000 to 3.5 million against BSkyB’s 259,00 additions, taking it to 716,000). So, The Times says, Berkett is “backing away from competing head-on with BSkyB” and instead will push perhaps its best asset.

Though Berkett believes broadband has been commoditised by the likes of Carphone Warehouse and Tiscali, Virgin already offers 20Mbps over cable against BSkyB’s theoretical maximum of up to 16Mbps (and up to 8Mbps is more commonplace). Its 50Mbps trial in Kent will come to market much faster than rivals’ copper-based next-generation services because BT (NYSE: BT) has not yet been compelled to unbundle its 24Mbps 21st Century Network as it was with standard exchanges — an upgrade that will be more expensive than that for Virgin, which is already planning to offer HD TV over the net.

Trying to compete in the offline multichannel TV landscape could be a costly and possibly losing battle, given dominant Freeview has no subscription fee and BSkyB commands the pay-TV market. Meanwhile, in telephony, fixed voice services have never been one of the big revenue drivers, and mobile has not really been fully integrated into the “quad-play” vision. In planning its cut-price Picnic service, BSkyB recognised the likelihood of attracting more customers by flexibly selling them just one or two services rather than forcing them to take all four. What’s more, as more services like TV and telephony are delivered over broadband, focusing on that medium could, in future, benefit all four.

Analysts quoted in The Times like the shift in emphasis. A focus on investing in broadband doesn’t mean that Virgin won’t continue to invest in content, since the company will still have to find compelling material to justify and drive users to a fast internet service. But it will put some focus on what this might mean for Virgin’s stalled plans to sell itself, and also how it plans to target in an equally cost-effective way those areas in the country where it doesn’t have a cable network.

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