Virgin Media UK Not Planning to Speed Up Cable Network Expansion

The overall boss of cable broadband ISP Virgin Media (Liberty Global) has told investors that their £3bn Project Lightning network expansion, which at the current pace will struggle to complete the target of 4 million UK premises passed by the end of 2019, won’t be ramped up. Meanwhile they do plan to target more MDUs.

So far the operator’s deployment programme has successfully expanded their FTTP and Hybrid Fibre Coax (HFC) based EuroDOCSIS cable broadband and TV network to reach an additional 1.3 million UK premises since around 2016/15.

However, at the current pace, they’re only completing around 500K premises per year, which means that ideally they would need to go a fair bit faster in order to hit their 2019/20 completion target of 4 million extra premises (total coverage of 17 million or c.60% of the UK).

Quarterly (Calendar) Project Lightning Rollout
Q2 2018 = 118,000 Premises
Q1 2018 = 111,000 Premises (likely impacted by heavy snow)
Q4 2017 = 159,000 Premises
Q3 2017 = 147,000 Premises
Q2 2017 = 127,000 Premises
Q1 2017 = 102,000 Premises

Liberty Global released their latest results yesterday (here), although the most interesting feedback on their Project Lighting work only followed later in the day during a meeting with investors. As part of that Mike Fries, CEO of Liberty Global, noted that they’d connected 280,000 customers from the 1.3 million built so far (representing over 650,000 revenue generating units).

Mike added that LG/Virgin are now focusing on “cost-effective build opportunities” and he noted that the new regulation being introduced in the UK would enable them to “target more [Multi Dwelling Units]” / large residential buildings (e.g. Ofcom and the Government’s various changes to boost access to existing infrastructure and foster more “full fibre” connectivity – example). But the most interesting remarks were reserved for their build progress.

Mike Fries, CEO of Liberty Global, said:

“We kind of like this pace that we’re building at now. And it’s driven, most importantly, by just optimizing the capital cost and ensuring that the returns stay where we want them to be.

We could build faster. I think [the team] could easily ramp up. But I think from where we sit today this is a steady pace, and one that ensures we’re driving the lowest cost per premise and attacking and penetrating the most attractive areas of the market. And that’s going to continue.

I think the trend going forward is going to be lower cost per premise as we look at MDUs, as the legislation we referenced gives us an opportunity to penetrate those markets more aggressively.”

Mike continued on to add that he didn’t see anything that “would probably push us to increase the pace,” although equally the operator doesn’t see anything that would “slow that pace down materially” either. In other words, there seems to be no chance of reaching 4 million by the end of next year and in our view sometime in 2021 may now be more realistic.

The catch is that Mike also refused to say whether their project would now achieve 4 million as planned. “I am not going to give you long-term guidance whether it’s three million or four million,” which means that it could still complete on time but possibly with distinctly less coverage than first announced.

The news will no doubt be welcomed by Virgin’s rivals in the urban space, particularly Openreach (BT), Hyperoptic, Cityfibre, TalkTalk and Vodafone that are targeting some of the same areas. Another question mark is whether or not FTTP will still account for roughly half of the network expansion or not (the operator has been very coy about that).

On the other hand if the current pace and a weaker end-coverage than planned is what delivers the best result for their balance sheet then we can well understand that position. VM are of course a commercial company and they are not using state aid to help expand their reach like others.