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Virgin Media shakes up UK fixed-line market with expansion plan

By Paul Sandle

LONDON (Reuters) - Cable operator Virgin Media is building out its network to reach a further four million British homes, taking the fight to rivals BT and Sky with its biggest expansion in more than a decade.

Owned by Europe's largest cable operator Liberty Global , Virgin Media said on Friday it would spend 3 billion pounds ($4.6 billion) expanding its network by a third, shaking up the relatively stable fixed-line industry

It competes with BT, Sky and TalkTalk in offering pay-TV, fixed-line telephony and broadband, known as "triple play". Virgin Media also offers mobile, and will soon face competition from BT and Sky there too as the two groups add mobile to cover all bases for customers.Analysts said the Virgin Media expansion was a "lightning bolt" to BT, which has just agreed to pay 12.5 billion pounds to buy mobile operator EE.

Shares in BT, which has announced plans to increase its connection speeds, were down 2.1 percent by 1600 GMT on Friday. Sky was down 0.8 percent and TalkTalk slipped 1.3 percent.

Deutsche Bank said the British fixed-line market had been relatively cosy compared to other European countries.

"As the UK market finally becomes a convergent one -- post BT/EE -- this morning's news serves as a wake-up call that competition can increase as well as decrease," they said.

The roll-out of cable in Britain ground to a halt at the turn of the century after Telewest and NTL racked up huge debts building their networks and buying rivals before the dotcom bubble burst and the telecoms market collapsed in 2000.

NTL and Telewest merged in 2006 and subsequently joined forces with Richard Branson's Virgin-branded mobile operator.

Liberty Global agreed to buy the group for about $23.3 billion two years ago, giving it the finances to expand.

Citi analysts said Virgin currently has around 5 million subscribers across all services.

"The big question for investors will be whether Virgin Media can maintain its (market) share profile vs. homes passed," they said.

"If this is the case, then potentially there are 1.7 million subscribers across the triple play space 'at risk' when the roll out of the increased footprint is completed."

(Additional reporting by Kate Holton; Editing by Mark Potter and Keith Weir)