Virgin Mobile’s race for the prize

Virgin Mobile’s race for the prize

For more than a month now, the fastest man on earth has been the face of Virgin Media. Sporting the ropiest of Richard Branson beards, Jamaican sprinter Usain Bolt has been busy advertising its broadband proposition on television and in print. But Virgin Mobile finds itself being slowed down by the cuts in mobile termination rates (MTRs) and customers moving away from prepay, if its latest results are taken into consideration (see box, below).

Jamie Heywood, director of mobile at Virgin Media, sees its mobile business as a long distance game. He said: ‘The mobile market is a competitive place at the moment. There’s strong competition and not a lot of revenue growth. That combination makes it quite a challenging environment.’

To combat this shortfall, Virgin Mobile will take a similar approach to last year and focus on customers that already use its digital television, broadband or fixed-line services. These quad-play homes, as they are known, are seen as the gold standard with only 5% churn, according to Heywood. He added: ‘By comparison, homes that have phone, television and broadband have a churn of 12%, so the benefit of adding mobile is really strong. It’s a strong strategy underpinning our results and we want to keep driving that.’

In order to entice customers, the MVNO is continuing its strategy of offering sweeteners for Virgin customers. These range from the Mobile Bonus for contract customers, which offers a discount of at least £5 if you are an existing Virgin customer, to the Addict Extra tariffs, which give additional allowances to Virgin Media customers when they top up.

Heywood said the MVNO’s handset range is the strongest it has ever been with 90% of devices sold being smartphones. Despite their recent woes, Heywood said Research in Motion (RIM) and HTC continue to be the star players for the business. He said: ‘There has been strong growth in BlackBerry [sales]. It’s a range we’ve been strongly associated with and remains a good partnership. But we are still growing – a large percentage of handset growth was with Samsung in 2011. HTC is also a strong player for us, particularly the Sensation.’

However, Virgin Mobile is continuing to promote value handsets, with the Alcatel Once Touch 282 (pictured) recently going on sale for £39.99. Heywood said he was unconcerned about the decline in prepay, even though pay-as-you-go sales were down 19.3% to £41.4m during its fourth quarter. ‘I would expect us not to be declining in prepay sales as much as 19% during 2012…In our quad-play households, we estimate there are around 11 million devices and half of those will be pay-as-you-go. A large part of our business is targeting those devices with the right kind of offer in pay-as-you-go products. It’s good for an open market but even sweeter to make them Virgin Media customers.’

Heywood said that while it is likely Usain Bolt will stick to promoting Virgin broadband, the company plans to make more of its quad-play offer this year, with mobile acting as a crucial part of that. He said: ‘It’s worth remembering that while we have had some great growth pushing mobile into media homes, there’s still a long way to go. Eighty per cent of our cable customers don’t have a mobile [from Virgin Mobile]. There’s still so much room to drive our strategy further.’ Or a long distance yet to run.

The final standings

Virgin Media blamed cuts in mobile termination rates (MTRs) and the shift away from prepay for a fall in revenue from £560m to £552.9m in its mobile business last year. But for the year ending 31 December, Virgin Media’s operating income soared 67.8% to £540m. In its fourth quarter, mobile sales were down 4.1% to £142.2m but up 2.5% if the impact of MTR changes was removed.

During 2011, average revenue per unit (ARPU) increased from £14.55 to £14.91. It hit £15.46 by the end of last quarter, up from £15.16 a year ago.

The company said contract sales increased by 11.7% during the fourth quarter to £97.6m but this was offset by a prepay decline of 19.3% to £41.4m.

Contract customers now outnumber prepay subscribers for the first time. Virgin Mobile increased its contract base by a record 102,500 customers during its fourth quarter. It now has 1.52 million contract customers, up 26% on a year ago. The majority of those additions (101,000) were in cable homes. The company estimates that 728,500, or 15% of its cable customer base, have at least one Virgin Mobile contract, up 33% from the beginning of 2011.

However, prepay numbers were down 19% to 1.51 million. Its subscriber base fell by 53,500 during the quarter, compared to 54,200 a year ago.

Written by Mobile Today
Mobile Today


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