Liberty Global sizing up partnerships to expand reach of Virgin Media's network

Liberty Global has plans to expand the Virgin Media network to an additional 7 to 10 million homes in the UK and is exploring a wide range of options to get it done.

While a portion of that will come from its ongoing Project Lightning fiber-to-the-premises initiative, the operator is also taking a look at potential partnerships involving investors and other network operators.

But, for now, Liberty Global isn't sharing a ton of detail about what types of partnerships it is exploring, despite recent reports that the company is already in talks with Comcast-owned Sky about a fiber joint venture and possible cable wholesale deal.

"I'm not going to get into great detail about what we might or might not be doing" with respect to potential network-facing partnerships, Mike Fries, Liberty Global's CEO, said Friday on the company's Q4 2019 earnings call. But he acknowledged that any way to expand the reach of Virgin Media's network in the UK would create a "very positive outcome."

"We're examining all options," Fries said, noting that it's part of a longer-term strategy at Liberty Global and not something that will be solved Q1 2020. "We would be interested in not just financial partners but also network operators who are interested in the same opportunities."

But Liberty Global is not interested in sacrificing free cash flow to make this happen, mirroring the financial strategy it's employing today for Project Lightning. That FTTP-based project added 505,000 premises passed in 2019, ending the year with 2.1 million premises passed, 454,000 customers and about £236 million ($307.79 million) in revenues.

"While we're not willing to sacrifice free cash flow to do that [network expansion] on-balance sheet… we would certainly entertain ideas [and] ways of achieving that off-balance sheet that could accelerate the reach of 1-gigabit speeds and the Virgin brand," Fries said.

Fries said Virgin Media is also looking into wholesale opportunities that could bring cash flow immediately to the company's bottom line, noting that 40% of the operator's network is currently being utilized. The con in that scenario is possibly cannibalizing Virgin Media's business, he added. Bloomberg reported last month that Liberty Global applied to Ofcom to pursue wholesale opportunities in the UK.

More generally, Fries noted that the UK market remains a tough one (Virgin Media lost about 110,000 revenue generating units for all of 2019), highlighted by an increasingly competitive (and promotional) broadband market alongside flattening video subscriber growth. That's being amplified by "external headwinds" over the past three years involving broadband tax increases, inflationary programming contracts and changes to mobile regulations. Those headwinds will continue into 2020 in the form of an anticipated operating cash flow reduction of about £100 million ($130.36 million).

Despite those challenges, "we are more than holding our own in this market," Fries said of the UK.

Regarding the company's video strategy, Fries noted that Liberty Global still sees pay-TV as a service "worth protecting," though the operator won't chase after less profitable, lower-end customers – essentially replicating a strategy being undertaken by major US cable operators such as Comcast and Charter Communications. As it focuses on more profitable customers, Virgin Media will soon roll out the company's new user interface, Horizon 4, on its V6 boxes (replacing TiVo), and the ongoing integration of OTT apps such as YouTube, Netflix and Amazon Prime Video.

"We are open for business when it comes to app integration," Fries said.

The Horizon 4 rollout in the UK will also mark Liberty Global's expansion of a video product that utilizes the Reference Design Kit, a preintegrated, open source software platform being managed by Comcast, Liberty Global and Charter.

"We think it will be transformational to the consumer experience in the same way X1 was for Comcast," Fries said. "The bundle matters, and video is a big part of the bundle."

Liberty Global hit its 2019 financial targets, but growth is becoming harder to come by in the wake of the company's sale of operations in Germany, Hungary, Romania and the Czech Republic to Vodafone last July.

Liberty Global Q4 2019 revenues were $2.98 billion, down 0.5%, and $11.54 billion for the full year, down 0.6%.

In the fixed services category, Liberty Global added 15,700 broadband subs in Q4, compared to a gain of 24,800 in the year-ago period. The company lost 91,300 video customers, versus a loss of 74,900 a year earlier; it also lost 52,700 voice subs, compared to a year-ago gain of 17,600.

— Jeff Baumgartner, Senior Editor, Light Reading

VIRGIN MEDIA TO BRING GIGABIT INTERNET TO MILLIONS OF HOMES

Virgin Media has today unveiled a bold boost to UK broadband with plans that will bring next-generation gigabit internet to its entire network by the end of 2021. The move will make Virgin Media the UK’s largest and fastest widely available residential gigabit connectivity provider.

Providing nearly 15 million UK households with access to gigabit internet speeds represents a significant step towards delivering the Government’s ambition to make reliable, gigabit-capable connections widely available over the coming years.

This next-generation service will be introduced in cities across Virgin Media’s national network later in the year, starting with Southampton. The first customers trialling these speeds have already been connected.

The scale of the plan, and rapid expansion programme, will mean more than a million people will be able to access broadband speeds of 1Gbps (1,000Mbps) by the end of 2019. The speeds will allow them to take advantage of emerging consumer technologies such as cloud gaming and virtual reality entertainment as well as 8K video streaming. Millions more homes are set to benefit next year when the service is expanded across the UK.

Investments

Virgin Media, through the backing of Liberty Global, has invested billions of pounds to expand its network. It provides speed upgrades unmatched by other major providers, all while broadband usage had increased by almost 40% in the last year.

It is now rolling out next-generation broadband technology, known as DOCSIS 3.1, across its cable network which will bring faster, more reliable broadband speeds to customers’ homes. Gigabit broadband speeds will be available later in the year, with the capability to roll out multi-gigabit connections and further improvements over the next decade.

Lutz Schüler, Chief Executive Officer of Virgin Media, said: “This is a giant digital leap forward for the UK.

“Virgin Media has been the unparalleled speed leader for many years. Very soon, for the first time ever, millions of people right across the country will be able to experience hyperfast and reliable gigabit internet connections thanks to the latest technology and the power of our network.

“This upgrade plan will see gigabit speeds rolled out at an unrivalled pace right across the country, bringing our customers the future-proof connections of tomorrow.”

Sharon White, Ofcom Chief Executive, said: “We welcome Virgin Media’s commitment to investing further in its network, providing gigabit speeds to millions more households. This shows the race to roll out ultrafast speeds to people and businesses across the UK is really gathering pace.”

Virgin Media has the largest gigabit-capable network in the UK which currently passes nearly 15 million UK premises. The network consists of both fibre-rich cable and fibre connected directly to the premises, both of which can provide customers with gigabit speeds.

In February, as further proof of its network innovation and broadband speed leadership, Virgin Media began trialling the UK’s fastest home broadband with a full fibre connection offering speeds of more than 8Gbps to homes in Cambridgeshire. The trial made use of EPON (Ethernet Passive Optical Network) technology – a global point-to-point network standard.

Trials Underway

Selected Virgin Media customers are already trialling the new 1Gbps connection ahead of services going live later in the year. No changes to the line connecting the customer’s home are required to introduce services; trialists simply plug in a new router to benefit from the speeds.

Further details on the next Virgin Media gigacities as well as availability and pricing will be announced in the coming months.

Giga Potential

Gigabit speeds are projected to add billions of pounds to the economy. According to research published by Virgin Media’s parent company, Liberty Global, from international management consulting firm, Arthur D. Little, the innovation spurred by the widespread availability of gigabit speeds will unlock a market of at least 250 billion euros per year in Europe by 2025.

By providing ultra-high capacity, reliable, secure, resilient and low latency networks, gigabit connections will unlock significant growth in new technologies over the next five to 10 years. Innovative technologies such as cloud-based gaming, 8K streaming, remote health telemonitoring and advanced telepresence, which could allow consumers to go ‘virtual reality shopping’ or watch live broadcasts of holographic sports events, are amongst those set to benefit.

With Virgin Media’s hyperfast gigabit internet, ultra-high definition 4K films and TV programmes, very large files and 360 degree videos can be downloaded almost instantaneously, even with multiple devices using the connection simultaneously. The connection is almost 20 times faster than the UK average broadband connection meaning that users can, for example:

• You can download a high definition (HD) film (5GB) in just 42 seconds, compared to more than 13 minutes on the UK’s average connection

• Download an Ultra High Definition 4K film (20GB) in less than 3 minutes, compared to nearly an hour (52 minutes) on the UK’s average connection

• Download a chart-topping PlayStation 4 game, for example FIFA 18 (45GB), in just six and a half minutes, compared to nearly 2 hours on the UK’s average connection

Project Lightning

Since the start of Virgin Media’s Project Lightning network expansion programme, more than 1.7 million premises have been added to the provider’s network. This is more than the build of all the alternative broadband infrastructure providers combined.

Liberty Global has already successfully launched gigabit cities in Germany, Poland and the Netherlands using DOCSIS 3.1 technology.