UK cable company NTL, which recently completed its merger with Telewest, proposes to buy Virgin Mobile in a marriage worth nearly a billion pounds. It will create a converged communications service offering television and broadband, together with fixed and mobile telephone services, under the Virgin brand.

Sir Richard Branson, the billionaire whose Virgin Group controls Virgin Mobile, will be the largest shareholder in the combined company. He has agreed to receive a mix of cash and NTL shares for his stake in Virgin Mobile, plus a licence fee of 0.25 per cent of relevant consumer revenues, currently worth around 9 millions pounds a year, for the use of the Virgin brand name.

The deal values the Virgin Mobile virtual network operator, with 4.3 million customers, at around £960 million. Launched in 1999, Virgin Mobile currently operates under a non-exclusive agreement with T-Mobile, and recently signed up with BT Movio to offer mobile TV to customers using the Digital One DAB broadcast network in the UK.

Four play
The deal with Virgin was first broached several months ago. The addition of mobile services, to create what is referred to as a quad play, will enable the company to develop converged fixed and mobile telephony devices, and video and voice services.

The combined company will have increased capability to compete more effectively in the UK communications market, although some analysts are sceptical about the logic of combining fixed and mobile services.

The potential synergies are expected to increase market penetration and reduce customer churn by providing an appealing set of products under the Virgin brand, while increasing average revenue per user through cross selling services between the respective customer bases.

Following the merger with Telewest, NTL is the largest provider of consumer
broadband, the second largest provider of fixed telephony, the second largest provider of pay television and, after the acquisition of Virgin Mobile, would be the fifth largest provider of mobile telephony in the UK.

James Mooney, the executive chairman of NTL, said the deal marked a step-change transaction not only for the company but for the media sector in the UK. “Central to today’s announcement is our strong belief that offering a quad-play underpins true media convergence, and offering high-quality communications services will, we believe, appeal to existing subscribers of the enlarged business as well as new customers,” he said. “There is a natural appeal for mobile, telephony, broadband and television content and NTL is now truly unique in its mass market product offering.”

Brand new name
One of the main attractions for NTL is the Virgin name, while Sir Richard Branson has always had an eye on using the brand to enter the television business.

NTL will have a 30-year exclusive brand licence with Virgin Enterprises for the use of the Virgin brand for its consumer business, including the provision of communications services, the branding and sale of related equipment, and the acquisition of sports media rights. There is speculation that NTL may bid for sports rights such as Premier League football. The company will also be able to rename its public holding company to include the Virgin name.

NTL believes that the combination with Virgin Mobile and the re-branding of its combined consumer operations with the Virgin name will help transform it into a national entertainment and communications company.

A Virgin Enterprises marketing executive will join NTL to provide brand expertise and Sir Richard Branson has agreed to support the promotional activities of the company.

Virgin Mobile, which also has a high street presence, will retain its existing brand and will continue under the same management.

Virgin is seen as one of the most admired and customer-friendly brands in the UK. NTL believes it will confer strong consumer appeal, particularly in terms of customer focus, in which the cable company has been distinctly lacking in the past, although to be meaningful, any change will need to go beyond a new name and logo.