Virgin Mobile customer growth slows

Virgin Mobile unveiled a sharp slowdown in growth in the first quarter, reflecting a greater focus on higher spending customers.

The virtual network operator, which piggybacks on the T-Mobile network, said it added 77,000 subscribers in the three months to the end of June against 150,000 in the comparable period.

The numbers were sharply down from most analyst estimates of between 100,000 and 150,000 subscribers.

The shares closed 1p down at 245p after a steep fall at the end of last week when Investec, the house broker, lowered its forecasts.

Virgin is the first of the operators to report data for the first quarter and Alan Gow, chief financial officer, warned that analysts would be shown to have been too optimistic. "There is a significant growth in churn and upgrading activity in the market, so I think most operators will report lower figures than analysts are expecting."

He said the focus on higher value customers and an increase in churn rate from 22.6 per cent to 24 per cent across a significantly larger customer base were important factors in the slowdown in growth at Virgin. The company had 4.1m active customers at June 30, against 3.39m a year earlier.

Virgin said first-quarter revenue was up 6.8 per cent but it was sticking to its full-year revenue growth forecast in the mid-teens compared to single-digit for most of its competitors.

Mr Gow said the reason for the optimism was three-fold. First, an underlying rise in average revenue per user (Arpu), disguised in the rolling 12-month Arpu data, which was down quarter-on-quarter at £123 versus £127.

Second, the impact of Ofcom imposed cuts, which came into effect last September, would be removed from the second half.

First-quarter revenue would have grown 18.3 per cent without this regulatory intervention.

Third, the feed through from higher value contract customers. In May, Virgin broke its tradition of selling mobile phone services on a pre-pay basis by introducing monthly contracts.

It currently sells them only through Carphone Warehouse but will increase distribution channels from September. Mr Gow said the contract business was "growing very strongly".