Virgin Mobile and NTL: the UK's first quad-play offering?

On 5 December 2005, Virgin Mobile confirmed that it is in discussions with NTL about a merger that would create the UK's first quad-play offering.

According to press reports, the UK's best-known businessman Richard Branson will exchange his 72 percent shareholding in Virgin Mobile UK for 14 percent of a combined NTL/Virgin Mobile. This would create a group with 3.3 million cable TV customers, 2.5 million broadband Internet customers, 4.3 million fixed phone customers and 5 million mobile customers. Virgin Mobile is an MVNO using T-Mobile's UK network.

Comment: This deal, if it comes off, represents an exceptional opportunity for Richard Branson to extend his Virgin brand into the heart of the UK's television and entertainment market. At the same time, the Virgin brand will have a lot more customer appeal than the NTL or Telewest brands, both of which have suffered from customer service problems. However, Virgin Mobile mostly has low-spending pre-pay customers, which are not well suited to conversion to a quad-play contract.

This proposed deal comes hot on the heels of NTL's merger with Telewest to create a single unified cable operator in the UK. Not only this, but NTL is struggling to improve its digital TV offering, raising broadband speeds and pushing into the business market. Thus integration of Virgin Mobile, together with a brand change, will be another serious challenge for NTL's management. Remember what happened to AOL and Time Warner.

This deal will create the UK's first quad-play company, putting together fixed, mobile, Internet and TV. Quad-play is becoming established in the US, where cut-price deals are starting to improve customer acquisition and reduce churn (for example, Sprint-Nextel recently forged a deal with four cable operators). However, offering cut-price deals to encourage customers to take a quad service is one thing. A much bigger challenge will be to generate value from actual convergence between the services. TV and video on mobiles has yet to be proven in the market. Virgin Mobile hopes to find out more with its current 1,000-person TV trial in London using DAB.

BSkyB, the hugely successful satellite pay-TV operator, is the single biggest factor behind this deal. The Virgin brand will help make NTL a credible competitor to BSkyB — which recently agreed to buy Easynet in a bid to get into the broadband Internet market. Then there is BT, which is moving slowly into mobile (through its MVNO deal with Vodafone UK) and entertainment (it has a joint venture with Yahoo! and plans a rather conservative hybrid digital broadcast/video-on-demand service in 2006). So, if this deal goes through it will define the shape of the UK consumer telecoms/entertainment landscape for the next decade: BSkyB versus Virgin versus BT, with the global Internet portals (Google, Yahoo! et al) as wild cards.

Julian Hewett is chief analyst at Ovum.