Virgin Media considers giving competitors access to cable network

Virgin Media has drawn up secret plans to open its cable network to rival telephone and broadband companies as part of an audacious bid to boost revenue and head off possible regulatory intervention.

The move could also lower prices for consumers by providing more choice for companies that currently provide services over the BT network.

By charging rivals such as O2, Sky, Cable & Wireless and Tiscali to use its infrastructure, Virgin Media hopes to improve its financial performance and pre-empt regulatory pressure to allow competitors to use Virgin Media's fibre-optic network.

A US investment bank analyst said: "Letting rivals use its wires for a fee makes commercial sense. And it could also keep the regulator off the company's back."

Five years ago, the authorities forced BT into "local loop unbundling", which allowed competitors to use the part of its infrastructure that reaches into homes.

It is thought that Virgin Media, which is headed by the New Zealand-born Neil Berkett, could use BT's Openreach subsidiary as a template. The division was set up in 2005 and now has hundreds of "wholesale" customers.

Virgin holds 24% of the UK broadband market and this could rise as Berkett extends the reach of the firm's fibre-optic network to about 57% of UK homes.

Ofcom, the telecoms watchdog, keeps the market under strict surveillance to ensure that it remains sufficiently competitive, although there is no suggestion that Virgin Media is engaged in anti-competitive behaviour. The cable company, which pays Sir Richard Branson an annual payment of £8.5m to use the Virgin brand name, is valued on New York's Nasdaq exchange at $2.53bn (£1.69bn).

It is due to report results for the first quarter this week and is expected to disclose that it has more than 5.5 million customers, against Sky's 9 million.

One of the stumbling blocks in Berkett's plan to open up the network in about 18 months' time is that Virgin Media will need to install expensive new technology to upgrade lines and make them user-friendly for third parties.

But analysts said that if the economy improves and the company's share price rebounds, Virgin Media could raise additional debt or tap shareholders for extra funds. An alternative is to offload "non-core assets". Berkett has recently appointed investment banks UBS and Goldman Sachs to conduct a review of Virgin's content division, which includes cable channels such as Virgin 1, Living and Bravo. Virgin Media is also BBC Worldwide's joint venture partner in UKTV, the group of channels behind Dave and UKTV Style. Analysts believe that the business could be sold for as much as £500m after Berkett said privately that he believes Virgin Media should be a distributor of content and services, not a supplier.

Virgin Media was established after Branson's Virgin Mobile merged with the cable companies Telewest and NTL in 2006. In the same year, Virgin Media launched a plan to bid for ITV, but the project was ditched after Sky bought a blocking stake in the commercial broadcaster.

Source: The Guardian, 4th May, 2009

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