Virgin Media will spend an extra £3bn to extend its UK cable network in its biggest investment drive since the 1990s.
“Project Lightning” will connect an extra 4m homes and businesses by 2020 to Virgin’s network, a process that the company says will create 6,000 jobs.
The investment is likely to increase competition with BT, the former telecoms monopoly that operates the UK’s largest broadband network.
BT has largely completed a £2.5bn fibre investment scheme, and committed a further £700m to a government-backed rollout of rural broadband. Sky and TalkTalk, rival operators, have started small-scale trials of building fibre networks.
Deutsche Bank analysts said the news was “a wake-up call”, showing the “very real” risks of heightened competition, despite consolidation among UK mobile operators. BT’s shares fell 2 per cent in Friday trading, wiping out gains made after this week’s Premier League rights auction.
Virgin Media, which was acquired by US billionaire John Malone’s Liberty Global for £16bn in 2013, has a cable network that passes 12.6m homes — about half of the UK.
“We’re going to fill in the gaps,” said Tom Mockridge, chief executive. “Sure, I get complaints from customers, but I get a lot more complaints from people who cannot get our service.”
The new scheme will be focused on improving coverage in areas such as London, Birmingham and Manchester. It will not bring cable to uncovered areas including Aberdeen and north Wales.
“We’ve not seen any European companies [extending their footprint] for quite a long time,” said Andrew Hogley, analyst at Espirito Santo. “That BT isn’t investing in fibre-to-the-home probably makes Virgin more confident to do this.”
Virgin’s new infrastructure would be “easier to monetise” than Sky’s £4.2bn investment in three years of Premier League rights, he added.
Under Project Lightning, Virgin’s capital expenditure will increase from 21 per cent of revenue last year to 25-28 per cent between 2016 and 2020. The company said it could modify or cancel the programme depending on “a variety of factors, including the financial and operational results of the earlier phases”.
About one in three homes passed by Virgin’s network buy broadband from the company, and a slightly smaller proportion also buy pay-television.
In the final quarter of 2014, Virgin added 59,000 broadband customers, fewer than BT and Sky. However, overall customer numbers rose by 44,000, the highest figure for a fourth quarter, and 1m more customers moved to ultra-fast broadband packages.
“After a record operating performance, Project Lightning is a significant investment that demonstrates the confidence we have in Virgin Media and the UK as a place to do business,” said Mike Fries, chief executive of Liberty Global.
Project Lightning will connect an extra 4m homes and businesses by 2020 to Virgin’s network
Virgin was formed in 2007 following the merger of NTL and Telewest, whose huge programme of digging up the country’s roads meant that the company still has substantial accrued tax losses against which to offset profits.
The company’s operating profits rose 41 per cent last year to £220m. It pays a fee to Sir Richard Branson’s Virgin Group for use of its brand.
Virgin has been squeezed by competition between BT and Sky, which have used sports rights and discounts respectively to lure customers. The company is pursuing a complaint to Ofcom, the UK’s communications regulator, about how Premier League rights are auctioned.
Broadband operators are betting on quadplay — bundles of fixed-line telephone, mobile phone contracts, internet and pay-TV. Virgin, which started selling such packages before its rivals, now has 17 per cent of its customers on quadplay packages, up from 16.3 per cent last year.
BT, whose fibre network covers 22m households, said: “We welcome Virgin’s decision to invest more, though their plan doesn’t seem to cover rural areas or huge swathes of the UK.”
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