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Virgin Media loses 36,000 customers

Powered by Guardian.co.ukThis article titled "Virgin Media loses 36,000 customers" was written by Mark Sweney, for guardian.co.uk on Wednesday 27th July 2011 10.05 UTC

Virgin Media lost 36,000 customers in the three months to the end of June, in part because thousands of students dropped their low-priced TV and broadband subscriptions for the summer holidays.

The Virgin Media chief executive, Neil Berkett, downplayed the significance of the customer losses – 21,200 of whom left Virgin Media's TV service – which were significantly worse than most analysts had forecast.

"We are very satisfied with the quarter," he said. "It proves our strategy of targeting the mass-market, digitally-aware, data-hungry consumers is working very well."

The company pointed out that more than 90% of the customers who left were "lower-value single- and dual-play [those taking two services from Virgin] customers" with 29% taking just a single service.

Virgin Media estimates that as many as 20,000 of the lost subscribers are students who will sign up again in September when the new university year begins.

"We deliver superior growth, we do not chase unprofitable business," said Berkett. "It is not in our psyche."

Despite the customer losses the company reported an investor-pleasing 3.2% year-on-year increase in average revenue per user – a key metric watched closely by analysts – to £47.35 as Virgin Media boosted takeup of its higher-priced packages.

While the company lost 12,600 broadband customers overall, Virgin Media said that half of all new sign-ups are choosing the 30Mb or higher superfast options – this compares with just 18% a year ago.

Almost 1 million customers subscribe to 20Mb or faster services, nearly a quarter of Virgin Media's total 4.04 million broadband subscribers.

Virgin Media has been focusing on boosting the number of customers who take three or four services – so-called triple- and quad-play – which now account for 63.8% and 12.6% of the total 4.78 million customer base respectively. Virgin Media has a total TV customer base of 3.77 million.

The company said that it has installed 50,000 of its new TiVo personal video recorder set-top boxes, and has another 25,000 customers awaiting installation. Virgin Media believes its TiVo PVR is more technologically advanced than rival products such as BSkyB's Sky+ box.

Virgin Media recently launched a multimillion-pound ad campaign to promote its TiVo box featuring Hustle star Marc Warren.

The company reported revenue up 2.2% in the second quarter to £986m with operating cash flow – a metric similar to earnings before, interest, tax, depreciation and amortisation – up 69.5% to £135m. Virgin Media had free cash flow up 14.2% in the second quarter to £287m.

"The financials are strong and are testament to management's confidence in the business and the strategy," said the chief financial officer, Eamonn O'Hare.

As an example of the company's financial strength he pointed to a newly-announced £850m capital return programme.

Goldman Sachs said it expected a negative reaction to Virgin Media's customer losses but argued that its wider financial position was strong.

"We expect the stock to be volatile today given weaker than expected net adds and business/mobile growth," the investment bank said in an analysts' note. "However we believe this weakness will prove temporary and [Virgin Media's] pricing power in consumer cable will sustain strong free cash flow growth, with large share buybacks emphasising management's confidence."

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