Virgin Mobile said on Wednesday its strategy of switching to higher value customers was paying off and that takeover talks with NTL were continuing.

The mobile phone operator said its move into the contract market had picked up speed in the three months to the end of December with the number of distribution outlets doubled and the launch of a television advertising campaign featuring controversial model Kate Moss. Further expansion is planned in the coming financial year.

The company is also trying to occupy the top end of the lower value prepaid connection market. The cost of persuading customers to buy more expensive phones is higher but Virgin forecast its second-half subscriber acquisition charge figure would be in line with the first half.

During the quarter, the active customer base grew by a healthy 193,000 to reach some 4.35m, a 12 per cent year-on-year rise that was driven by Christmas sales of prepaid connections and the expansion of the contract customer base.

Average revenue per user, a yardstick popular with the industry, edged up £2 compared to the previous quarter to £123 on a rolling 12 month basis. Again, the company said the cause was the move into the contract market and more selective targeting of prepaid customers.

Service revenue growth was 20.3 per cent year-on-year. The relative contribution of non-voice service revenues was unchanged at 32.6 per cent of the total.

The company said only that its talks with cable operator NTL about a potential offer were continuing. In December, Richard Branson, who holds a 72 per cent stake in Virign Mobile, supported an approach from NTL at 323p a share, only to see the offer rebuffed by minority shareholders. The entrepreneur was believed to be subsequently looking for a way forward that would see his stake valued at a discount to that offered to other shareholders.

In early London trade, Virgin Mobile shares were marginally higher at 370p.

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