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virgin media.Analyst_day_november112008


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virgin media.Analyst_day_november112008

  1. 1. Investor & Analyst Day New York November 11, 2008
  2. 2. Forward-looking statements “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Various statements contained in this document constitute “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995. Words like “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,” “positioned,” “strategy,” and similar expressions identify these forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements or industry results to be materially different from those contemplated, projected, forecasted, estimated or budgeted, whether expressed or implied, by these forward-looking statements. These factors, among others, include: (1) the ability to compete with a range of other communications and content providers; (2) the ability to manage customer churn; (3) the continued right to use the Virgin name and logo; (4) the ability to maintain and upgrade our networks in a cost-effective and timely manner; (5) possible losses in revenues due to systems failures; (6) the ability to provide attractive programming at a reasonable cost; (7) the ability to control unauthorized access to our network; (8) the effect of technological changes on our businesses; (9) the reliance on single-source suppliers for some equipment, software and services and third party distributors of our mobile services; (10) the ability to achieve our business plans; (11) the ability to fund debt service obligations through operating cash flow; (12) the ability to obtain additional financing in the future and react to competitive and technological changes; (13) the ability to comply with restrictive covenants in our indebtedness agreements; (14) the extent to which our future cash flow will be sufficient to cover our fixed charges; and (15) general economic conditions. These and other factors are discussed in more detail under “Risk Factors” and elsewhere in Virgin Media’s Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission, or SEC, on February 29, 2008, as amended, and Virgin Media’s Quarterly Reports on Form 10-Q for the quarter ended March 31, 2008, as filed with the SEC on May 8, 2008, for the quarter ended June 30, 2008, as filed with the SEC on August 7, 2008 and for the quarter ended September 30, 2008, as filed with the SEC on November 10, 2008. Virgin Media assumes no obligation to update forward looking statements to reflect actual results, changes in assumptions or changes in factors affecting these statements. 1
  3. 3. Introduction Jim Mooney – Chairman
  4. 4. Agenda 9:40 Neil Berkett: Strategy for Growth and Performance to Date – Why Virgin Media is best positioned in a new converging digital world 10:20 Mark Schweitzer: Consumer Growth Initiatives 10:40 Q&A 11:00 Break 11:15 Howard Watson: Network Strength – Technical and competitive advantages of our network now and in the future Building a Customer Focused Organization – Proposed operational transformation program 11:40 Q&A 12:00 Charles Gallagher: Financial Structure & Flexibility – Non-consumer assets – Financial implications of operational transformation – Investing for growth – Flexible capital structure 12:20 Neil Berkett: Regulatory Progress and Summary 12:30 Q&A 12.45 Close 3
  5. 5. Management Neil Berkett CEO Howard Watson Andrew Barron Mark Schweitzer Charles Gallagher Chief Transformation Chief Customer and Chief Commercial Senior Vice & Technology Officer Operations Officer Officer President Finance Elisa Nardi Bryan H. Hall Malcolm Wall Chief People Officer General Counsel CEO – Content 4
  6. 6. Leveraging our strengths since the mergers • Cable merger in 2006 resulted in £250m annualized cost savings • Reinvestment in highly competitive bundled pricing offers • Acquired Virgin Mobile and re-branded in Feb 2007 • Strong progress in fundamentals – Churn, product quality, reliability and customer service • Today we are refocusing the business to exploit network capability for renewed growth – Lead in next generation broadband – Lead on-demand TV revolution – Leverage mobile as our third screen in the home • Building a more efficient customer focused organization through proposed operational transformation – Objective of over £120m of annualized P&L savings by 2012 5
  7. 7. Strategy for Growth and Performance to Date Neil Berkett – CEO
  8. 8. 7
  9. 9. Align operating model with strategy Building a customer focused organization able to respond effectively to fast moving changes in the market, technology and consumer demands • Expect proposed new operating model will deliver significant improvements in – Customer focus, product management/delivery, and clearer accountabilities leading to streamlined decision-making • Supported by better processes with a view to achieving annualized P&L savings of over £120m by 2012 • Strategic growth initiatives mean capex expected to be at top end of 13-15% guidance range – Targeting 10Mb growth, intelligently expanding our network, strengthening TV, DPI, behavioural advertising, leveraging mobile 8
  10. 10. The world is changing! UK penetration of integrated PVRs, VOD Forecast global consumer IP traffic 2005-2011 & HD services Consumer IP traffic will quadruple in 4 years driven by video TB/mo 8 Exabytes/mo Web 3.0 Video to STB & TV PVR VOD HD 100% Switch to HD delivery IPTV 90% Core to Casual MMOG 80% DVD Digital Retail Global consumer IP traffic 70% Rise of Streaming Multimedia enabled UGC 60% Broadcasters go online 50% 40% MMOG 30% UGC sites e.g. YouTube Social Networking 20% SaaS – 2 Exabytes/mo Web 2.0 10% Broadband Adoption Web 1.0 0% eCommerce e.g. Amazon 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Web-based email 1970 1980 1990 2000 2005 2006 2007 2008 2009 2010 2011 Yahoo! & Google emerge Netscape Browser Source: Cisco, 2008 Source: 3reasons ltd, spring 2008 • Changing habits of consumption • Overall traffic per user is growing rapidly across the world • Consumer IP traffic will quadruple by 2011 driven by video – Cisco estimate (see graph) – UK faces unique iPlayer issues • Ofcom suggest 400% increase in VOD in next three years • Virgin Media broadband customers’ average data consumption up 81% from 4.7 to 8.6Gbytes per month in 18 months 9
  11. 11. Application strength is key • Levelling the linear content playing field versus Sky – Possible regulatory intervention from Ofcom Market Investigation – Economic wholesale access to premium – Access to Premium HD – Return of Sky Basics – Largely funded through increase in VMtv licence payments – Plan to add linear HD channels • Content increasingly delivered quot;over the topquot; – iPlayer online – Studio movies/TV increasingly delivered over internet – You Tube, Google Video, iTunes etc • Consumers increasingly demanding On-Demand content IP and TV world converging; Virgin Media best placed to exploit 10
  12. 12. Our priorities Refocus growth strategy on leveraging our network advantage Strategic Strategic Leverage mobile as the 3rd Lead next generation Lead on-demand TV broadband revolution screen in the home No.1 priority reducing churn Billing system migration Improve product quality and reliability Operational Operational Customer service Address backbook Develop analytical tools to enhance understanding of the market and our customers Addressing our capital structure Financial Financial Capture 0perational efficiencies Regulatory Address imperfections in the Regulatory Framework Regulatory 11
  13. 13. Cable has a clear technical advantage Virgin Media BT Network Network LLU Hub Exchange Copper to the Cabinet Fiber to the Cabinet (POTS & ADSL2+) Cabinet Cabinet Coax to the Home (DVB-C & DOCSIS 3) Copper to the Home (POTS & ADSL2+) Copper to the Home (POTS & VDSL2 capable) 2, 10, 20, 50 Mb/s >20 Mb/s to <5% Home Home Plus DTV & VOD Includes any IPTV 12
  14. 14. Delivering the 3rd Screen with TV, Broadband and Mobile Entertainment Communication and social networking • Plan to launch ‘Free instant Windows Messenger’ for • Mobile portal and Virgin TV programme collaborations customers with compatible handsets – Sarah Connor Chronicles, Most Haunted • Instant Messenger expected to attract customers with • Mobile Portal and TV Video On Demand collaborations – higher usage profiles joint music campaigns e.g., Jack Johnson artist takeover • Mobile access to Virgin broadband e-mail addresses simultaneously on both TV and Mobile platforms provides always-on mail, home or away • New mobile portal launching Dec offering customer access • Cross portal and sponsorship programmes – V Festival to social networking on mobile – quick access to Facebook, content, mobile gig list application, with live TV footage via Channel My Space, Bebo, Yahoo!, new Yahoo! search engine Web browsing Handsets and pricing • • More 3G devices with larger touch screens to support Currently use Motricity for platform / search • internet / video use Provides simple mobile access to popular mobile web sites, e.g., BBC, e-Bay, Amazon • Simple, affordable pricing • Redesigned mobile portal to promote games, music, TV – Daily unlimited usage rate of 30p from early December highlights, • – Monthly data inclusive packages in 2009 Cross platform advertising delivered via 4 screens 13
  15. 15. We have the best broadband economics Giving us a real competitive advantage In-franchise share of revenue indexed to share of Total & in-franchise share of broadband subscribers subscribers In-franchise market share National market share 48.7% 161 106 101 96 23.2% 22.2% 66 17.9% 11.2% 45 12.0% 11.3% 6.9% 10.8% 8.0% 6.5% 3.4% Virgin BT Retail Sky Talk Talk Tiscali Orange Virgin BT Retail Sky Talk Talk Tiscali Orange Media Media • Our unique broadband proposition creates a Average cost per subscriber relative to Virgin Media uniquely profitable combination: – High share, strong ARPU and leading cost 248 base 217 210 193 179 • DSL competitors face an unenviable choice 100 – Growing market share, but with low revenues on a high cost base (Sky) Virgin BT Retail Sky Talk Talk Tiscali Orange – Falling market share, with high revenues Media on a high cost base (BT Retail) 14 Source: Oliver & Ohlbaum Analysis, October 2008; Costs weighted for LLU / Non LLU split
  16. 16. Strategic growth objectives Consumer strategy YTD progress • 4Mb to 10Mb upgrade completed in Sept 08 • Supported wireless router launched Lead next Lead next • Migrating 20Mb customers onto Docsis 3.0 will improve service quality and generation broadband generation broadband speed for all tiers • Preparing for 50Mb launch (Q4) • First and only TV platform to launch iPlayer Lead on demand TV • Approx 12m iPlayer views per month, 1/3 of all iPlayer views Lead on demand TV • revolution 96% growth in VOD views from Q3-07 to Q3-08 revolution • Increased DVR (V+) penetration from 6% to 14% year-on-year • Record contract cross-sell to cable base in Q3-08 Leverage position in • Renegotiated wholesale voice and data rates with T-mobile Leverage position in • mobile Launched mobile broadband in October mobile • Mobile sales integration 15
  17. 17. Customers are paying for quality On-net broadband tier mix (‘000s / % of total) Tier mix at point of acquisition quot;Mquot; 2Mb quot;Lquot; 10Mb quot;XLquot; 20Mb quot;Mquot; 2Mb quot;Lquot; 10Mb quot;XLquot; 20Mb 3,308 3,626 4% 6% 10% 12% Average ARPU uplift 19% 18% 19% – L to XL + £8 35% – M to L + £3 76% 77% 71% 53% Q3-07 Q3-08 Q3-07 Q3-08 • Huge success in driving upsell to higher speed, higher priced broadband at point of sale • Upsell is central to our broadband strategy, given high market penetration but low penetration of high speed – Higher ARPU – Lower churn – Increased differentiation versus competition 16
  18. 18. The on-demand world is here VOD views per user iPlayer/BBC views (m) Monthly VOD views (m) 45 27 11.9 9.1 17 23 Q2-08 Q3-08 Q3-07 Q3-08 Q3-07 Q3-08 • VOD usage is continuing to grow – nearly half of our TV homes use this service monthly – Catch-up TV, music and TV on demand are the most viewed products • VOD reduces churn • Leverage growing usage through VOD advertising capability – 3 month trial underway in North London – Adverts from Kellogs, John Lewis and Royal Mail are being inserted around selected on-demand programs from VMtv, Channel 4 and Warner TV • Opportunity to further improve user interface through personalisation, search, visuals, recommendations etc. 17
  19. 19. Strong operational trends since merger Broadband subscribers (000s) Mobile contract subscribers (000s) 3,502 3,563 3,626 579 3,308 3,414 3,192 3,059 3,146 492 2,902 2,980 436 376 329 299 246 192 121 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Percentage of calls abandoned Fault rates DTV Broadband Phone Combined 20% 14% 12% 15% 10% 8% 10% 6% 4% 5% 2% 0% 0% Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 18
  20. 20. Strong operational trends since merger (cont’d) Triple play¹ RGUs² (millions) 53.1% 54.7% 12.2 12.0 11.9 51.3% 11.7 49.5% 11.4 11.2 11.2 45.2% 47.0% 11.0 10.9 42.9% 40.6% 37.1% 38.7% Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Cable RGU / customer Monthly on-net cable churn 2.38 2.36 1.8% 1.8% 1.7% 1.7% 2.32 1.6% 2.29 1.5% 1.5% 2.26 1.4% 2.23 1.3% 2.20 1.2% 2.17 2.14 2.12 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 1 Triple play is percentage of on-net customers who take all three cable TV, phone and broadband services 19 2 RGUs include on-net, off-net and contract mobile
  21. 21. Financial improvement since merger SG&A (£m) OCF margin³ % 33.9% 33.6% 267 267 32.8% 258 32.4% 245 31.7% 238 31.0% 230 30.6% 223 29.9% 217 211 28.9% Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Net debt4 (£m) OCF¹ less Capex² (£m) 225 5,905 218 209 204 5,816 199 5,794 5,741 5,736 5,732 184 182 5,677 5,637 5,597 155 153 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 1 OCF is operating income before depreciation, amortization, goodwill impairment and restructuring and other charges and is a non-GAAP financial measure 2 Capex is purchase of fixed assets and purchase of intangible assets 3 OCF margin is OCF divided by revenue 20 4 Net debt is a non-GAAP financial measure; See appendices for reconciliations of non-GAAP financial measures to their nearest GAAP equivalents
  22. 22. Growth and value drivers Volume ARPU Tenure / Churn • Broadband penetration • Reduce backbook premium • Fault reduction whilst protecting ARPU and • Product differentiation • Product depth / quality margin (50Mb BB, V+, VOD, mobile) (50Mbs BB, V+, VOD, mobile) • Driving up-sell and cross-sell • Sales and marketing efficiency • VFM enhancements via • Improving depth and range cross-sell / up-sell to reduce – Segmentation of products backbook premium – Channel strategy • Price rises • Becoming more customer – Maximizing customer centric and improving Net • Manage telco usage decline touchpoints Promoter Score (NPS) • Building on Virgin brand • Bundling drives RGU/customer • Intelligently expanding our footprint Embedded key customer value metrics across the organization 21
  23. 23. Influences on revenue and ARPU Telephony usage Potential market Backbook decline pressure Revenue and ARPU New customers Upsell Cross-sell Price rises Upsell, cross-sell and new customer growth underpinned by superior broadband, VOD in TV and contract mobile 22
  24. 24. Backbook unwind slowing Mitigated by up-sell/cross-sell Breakdown of quarterly rate of migration from Back to % Customers on backbook pricing Front Book pricing (%) 100% Price migrate to Frontbook Reduced by success of up-sell/cross-sell offers 90% Q2-07 backbook unwind estimate Up-sell to Frontbook 80% up-sell offers used to migrate customers 70% Cross-sell to Frontbook 60% Cross-sell offers used to migrate customers; improved profitability of offers in 2008 50% 40% 30% 20% Q3-08 backbook unwind estimate 10% 0% Apr-07 Jun-07 Aug-07 Apr-08 Jun-08 Aug-08 Apr-09 Jun-09 Aug-09 Feb-07 Oct-07 Dec-07 Feb-08 Oct-08 Dec-08 Feb-09 Oct-09 Dec-09 2007 2008 2009 23
  25. 25. Sources for sustained revenue growth Next generation broadband subs (10Mb or more) Contract mobile subs 4.0m 1.6m 0.6m 1.05m Q3-08 Q4-12 Q3-08 Q4-12 Average monthly VOD views 100m 45m Q3-08 Q4-12 24
  26. 26. Intelligently expanding our cable footprint Significant low cost New Build opportunity • New homes can be cabled for £200 or less per home • Could add 40-50k per annum when house build market returns • Strong take up in New Build areas with average penetration reaching 40% within 6 months • 5 year payback and significant ongoing value generation – through up-sell and cross-sell • Developing relationships with national and regional developers to pitch Virgin Media’s vision and negotiate favourable commercial agreements • Opportunities of near-net infill and analogue overbuild also being investigated • Accommodated within existing capex budget New build program scales up on success basis 25
  27. 27. National household opportunity Non-cable coverage split between LLU and Non-LLU Opportunity to expand our cable footprint All UK - 5,500 exchanges • C&W wholesale deal (25.8 m homes) gives us better cost structure • Enhanced products and improved pricing • Billing systems migration Wholesale LLU (C&W) now completed Cable on-net network 11m HH of which 4.3m homes incremental 12m marketable homes to on-net • BT and BT Wholesale products are only competition to Virgin Media • WLR and NLA cut out BT relationship BT Wholesale Network • We are the only major provider who can bundle with mobile • Better opportunity to capture cable “movers” • We currently have low off-net penetration (<3%), meaning we can be more aggressive for growth 26
  28. 28. Reasons customers will choose Virgin Can watch what I Great value want when I want bundles with 000’s of hours customized for my Fastest and most Customer friendly of VOD needs reliable broadband Makes the digital iPlayer on my TV! world simple Then only place I Great value mobile can get mobile, My favourite with my cable landline, TV and content across all services broadband in one Simple single bill 3 screens - TV, PC great package and mobile 27
  29. 29. Consumer Growth Initiatives Mark Schweitzer – CCO
  30. 30. Lead Next Generation Broadband Goal: 4m next generation broadband subscribers by end 2012
  31. 31. The consumer broadband market today • Continued growth in overall broadband market (though slowing) • Continued pricing pressure at low end; pricing and cost pressures likely to drive consolidation over time • Cable to retain and deepen differentiation at the top end – Virgin Media & Sky the only major players basing tiers on speed; others differentiate by usage caps – Our unlimited fibre optic proposition will remain unique for foreseeable future Consumer broadband market (000s) Consumer broadband market share Other Virgin Media BT 7% Carphone Warehouse Tiscali Orange Virgin Media Sky Orange 7% 23% Other DSL & LLU 16,000 14,000 Sky 12,000 11% 10,000 8,000 Tiscali 6,000 12% BT 4,000 22% 2,000 Carphone 0 18% Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- 06 06 06 06 07 07 07 07 08 08 Source: Company reports and Virgin Media research Source: Company reports and Virgin Media research 30
  32. 32. Opportunity and strategic initiatives in broadband Characteristics Our positioning Opportunity • • Growth driven by price & Lowest unit cost operator bundles Low tier broadband • • Significant up-sell 10Mb cable offering superior opportunity to 16Mb DSL (latter reaches Mid tier broadband only 10% of UK homes) • • Speed & quality important Sustainable competitive • Application driven advantage vs. ADSL High tier broadband • Our 2, 10, 20, 50Mb tier structure drives upsell and better value acquisitions – increasing share of broadband profit pool • 50Mb drives upsell and wider appreciation of our ultra-fast broadband capability • 2009 will focus on 10Mb, using Docsis 3.0 to dramatically reinforce our QoS and speed leadership • Will launch a market-leading package of Value Added Services • Plus ground-breaking new services, enabled by increased network intelligence • Relaunch of, enhancing quality of offering & customer experience 31
  33. 33. Leading in broadband speed delivery Virgin Media continue to lead the market in broadband speed delivery, leading the ADSL ISP’s in a number of key benchmarking studies throughout 2008 Virgin Media now tops the latest Point Topic research in the ratio of advertised speed to reported speeds above 2Mb, leading Tiscali, Sky, BT, Car Phone Warehouse and Orange (Jan – July 2008) Virgin Media have now comprehensively taken the crown for the Fastest broadband provider away from O2 who have held the position all year (Sept 2008) With an average reliability of 50.5%, cable broadband continues to be far more reliable than ADSL as a whole – which scored an average of only 38.8%. Broadband Choices also reported our 2Mb service delivering 81.5% of headline speed, far superior to any ADSL providers 2Mb service (Aug 2008) Virgin Media 20Mb average throughput is 3 times faster than the top speeds offered by BT, AOL, Tiscali, Talk Talk and Pipex (Sept 2008) Top 10 Broadband 2008 Awards: Virgin Media won the title of Best Broadband Bundle – “The award for best broadband bundle went to Virgin Media whose range of fast, unlimited, cost-effective bundles stood out from the crowd” (2008) Recently the BACC, the body responsible for the clearance of TV adverts prior to transmission, have cleared our 50Mb launch advertising which claims our 50Mb product is the ‘Fastest’ Broadband available in the UK. This is a first time ever that the body has approved a ‘superlative’ speed claim for an ISP and reinforces our dominant speed positioning in the UK market (Oct 2008) 32
  34. 34. Launch of 50Mb: the next generation of UK broadband • The best, fastest broadband product – by a mile! A tripling of Virgin Media’s cable network capacity – Unbeatable speeds – Broadband with robust VAS package DOCSIS 1.0 network DOCSIS 3.0 network – Packaged with wireless kit 3.7 m customers Next Generation in 2008 • 50Mb will be priced to drive premium user demand – Targeted at power users & ‘premium purchasers’ – A compelling upsell price point 38 38 50 50 50 50 – Currently in final trials, launch late Q4 Mbit/s Mbit/s Mbit/s Mbit/s Mbit/s Mbit/s • DOCSIS 3.0 a huge ‘halo’ for all customers – DOCSIS 3.0 the largest UK network build since the original launch of the cable network – 4 new D/s channels on top of today’s 2 D/s – The new home for our 10-20-50 customers Each D1 modem can Each D3 modem can view – Statistical gain of channel bonding deliver massive view one D/s channel all 4 D/s channel. speed capability Theoretical capacity 200 Mbit/s – Dramatic reductions in cost of capacity 33
  35. 35. Lead on Demand Television Revolution Goal: 100m VOD views per month by end of 2012
  36. 36. The TV market today • Growing share for “multi-channel” viewing driven by free-to-air DTT (Freeview) • VOD is still a relatively new development, but iPlayer is driving growing usage • Sky keeping churn low through Sky+ and other incremental services • BT recently entered market with BT Vision (TV over ADSL) Digital TV market growth (000s) Digital TV market share at Q2-08 Sky Freeview Virgin Media Free Sat Free Sat TV over ADSL 4% 25,000 Virgin Media 15% 20,000 Freeview 15,000 43% 10,000 5,000 Sky 0 38% Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- 06 06 06 06 07 07 07 07 08 08 Source: Company reports and Virgin Media research Source: Company reports and Virgin Media research 35
  37. 37. Opportunity and strategic initiatives in TV Characteristics Today’s positioning Opportunity • • Low growth Poor content economics Premium TV Limited • • Heavy investment Sky owns c.80% market • • Decent growth VOD to all Basic pay-TV • • Choice / price driven Setanta in XL TV tier • • Many subs dissatisfied “Free TV + VOD” bundled Free DTV and want more choice with other products • Creating linear parity following the return of Sky basics • Exploit our VOD superiority • Grow penetration of our best-in-class DVR service • Build our HD offering • Enhance the TV interface • Regulatory progress on premium offers significant opportunity – Today less than 20% TV subs take premium at negative margin 36
  38. 38. VOD content Virgin Media offers over 4,600 hours of on-demand content Cost • Huge selection of shows from the last 7 days from: BBC, 4oD, LIVING, Bravo, Virgin1 Free Catch Up • Includes 350 hours from BBC iPlayer TV • ITV and Channel 5 are the only terrestrial channels missing on catch-up • Over 2,000 comedy, drama, entertainment, factual, kids and sci-fi shows M&L– • TV Choice 80 hours HD content £7/month XL – Free • Over 2,000 music videos M&L– • Music Karaoke, playlists and concerts 20p/video • Adds a live music component XL – Free • Over 500 films – blockbusters, cult classics, family favourites Pay Per • Movies 30 HD movies View: £1.50-£4.50 • Current TV, Teachers TV, Real Estate TV, Baby Channel, New You Free More Free TV (Niche) • Bollywood movies: from £2 per view Various More On • Adult on demand: £5 per view; £6 HD per view Demand • Late night 24/7: 18 rated but not “Adult” rated, from £2.49 More to follow: catch-up, live music, enhance SVOD with premium TV content and expand HD VOD 37
  39. 39. Improving the interface DVD cover navigation Advanced search 38
  40. 40. Growing V+ penetration and enhancing HD PVR penetration in Sky and cable digital TV homes • Significant DVR growth opportunity with (as at 30 Sept 08) only 14% V+ penetration 46% • Our V+ box superior to current Sky+ box – 3 tuners, 160GB storage, HD capable • V+ customer churn is 57% lower than non V+ TV customer churn • Plans to enhance HD content 14% – Will add HD broadcast channels – Continue to grow on-demand HD content Sky Virgin Media 39
  41. 41. Telephony Goal: 1.6m contract mobile customers by end of 2012
  42. 42. Defending the cash cow UK residential market call volumes (billions of minutes) On-net telephone net adds (000s) and year-on-year decline (%) 39 32 22% 29.8 29 30 20% 17.8% 26.8 28 18% 15 26.3 15.3% 25.1 25.1 6 26 16% 15.6% 15.4% 24 14% 14.4% (1) 22 12% Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Source: OFCOM Telecommunications Report, Oct 2008 On-net telephone customers by type (millions) • UK residential market call volumes declined 15% y-o-y in Q1-08 Metered Unmetered 2.10 2.10 • Mitigate impact of usage declines through: 2.07 2.04 2.02 – Continued focus on migration to flat rate 2.04 – Bundling fixed line with broadband and TV 1.99 1.99 1.98 – Mobile cross-sell and bundling initiatives e.g. bundle landline / mobile minutes 1.89 – Potential for line rental price increase – Continued innovation e.g. Talk Anywhere Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 41
  43. 43. Key strategic initiatives in mobile Contract mobile customers (000s) Lower mobile churn by VMED cable customers 579 436 VMED 82.4% 329 customers 246 121 Non-VMED 56.4% customers Q3-06 Q1-07 Q3-07 Q1-08 Q3-08 Mobile subscribers retained at 12 months • Fully integrate Cable / Mobile • Drive higher contract penetration more aggressively into Cable base • Exploit new T-Mobile wholesale rates to grow mobile data usage to handset • Mobile broadband – opportunity to bundle with fixed broadband • Mobile TV / Video is a growth opportunity, leveraging our existing TV platform • Cross-sell and bundle with offnet more aggressively 42
  44. 44. Becoming More Knowledge Driven
  45. 45. Developed customer insight tools which help us understand the market… Household Usage Gives us a comprehensive picture of a total household’s use of communication services, Gives us a clear and detailed allowing us to segment the entire UK market to picture of how our customers use identify “must succeed with” segments and our services and provides valuable help us understand how to win in these spaces insights into household and subscriber lifestyle Value Ensures we understand the differences between our highest Subscriber and lowest value customers and Gives us a comprehensive picture of the are able to utilise this information consumer and segment the UK market to help operationally us understand the mapping between household and individual needs 44
  46. 46. Our customer segment strategy Aspiring Thriving Realigning Young Young New Growing Teenage Nearly Older Older Empty 1 Greys Utilise our quad play product Single Couple Family Family Family There Single Couple Nesters Actively superiority, brand image and service 1 Doing Well reliability to dominate the Thriving 2 2 orient our Family Market Doing OK services to the highest Making Do 2 Exploit the natural “halo effect” from 2 value part of Single our new focus to drive significant Parents the market growth in the shoulder segments – Surviving, Aspiring, Realigning Surviving Retiring Emerging Nesting Rather than leading on speed for the launch of 50Mb Broadband, position as the Utilise a variety of only broadband services that will support fast simultaneous usage for multiple levers to implement family members the strategy Provide clear reassurance on product reliability through guarantees, meeting Ensure customer care concerns through clear communication of service levels we Marketing address Communicate parental control levels available and clear instructions on how to the needs apply Proposition of our “bulls eye” Provide integrated mobile and landline propositions which give clear benefits for having family members on Virgin Mobile network (free calls to landline, reduced segment Commercial calls between family members etc) Utilise understanding of different TV preferences across family to produce family TV channel pack (Sport for Dad, Celebrity / Soaps for Mum / Cult USA viewing and films Operations for teens / CBeebies etc for children) 45
  47. 47. Q&A
  48. 48. Network Strength Howard Watson – CTTO
  49. 49. Network Strength • Video usage is now driving network bandwidth . . . all usage trends are up • Hybrid Fiber Coax remains extremely well placed to serve this demand • UK market has unique characteristics which favour cable 48
  50. 50. Our network advantage 2008 Virgin Media BT Network Network LLU Hub Exchange Copper to the Cabinet Fiber to the Cabinet (POTS & ADSL2+) Cabinet Cabinet Coax to the Home (DVB-C & DOCSIS 3) Copper to the Home Copper to the Home (POTS & ADSL2+) (POTS & VDSL2 capable) 2, 10, 20, 50 Mb/s >20 Mb/s to <5% Home Home Plus DTV & VOD Includes any IPTV 49
  51. 51. Our network advantage 2012 Virgin Media BT Network Network LLU ? Hub Exchange Fiber to the Cabinet Fiber to the Cabinet Cabinet Cabinet Coax to the Home (DVB-C & DOCSIS 3) Copper to the Home Copper to the Home (POTS & VDSL2) (POTS & VDSL2 capable) Capable of 200 Mb/s Max Speed 40Mb/s Home Home Plus DTV & VOD Includes any IPTV 50
  52. 52. Our spectrum advantage BT VDSL2 Copper spectrum used for VDSL2 is 12 or 30MHz Copper Spectrum Virgin Media Coax spectrum is a min of 650MHz with c80% at >750MHz Coax Spectrum Broadband will Analog TV Digital TV VOD use up to 48MHz approx 240MHz approx 216MHz approx 72MHz after DOCSIS 3 will be freed up used By DVB-C used by DVB-C rollout completed with switch off for linear TV for on-demand Spectrum freed up from ATV provides plenty of scope for further growth in Broadband, Linear DTV (SD & HD) and VOD 51
  53. 53. A superior quality of experience You don’t lose If you want to Broadband speed watch iPlayer on when you watch your TV in full TV on-demand TV quality – you can + + Broadband Digital TV VOD The independent spectrum allocations for Broadband, DTV and VOD mean that each one can be engineered to deliver the right simultaneous QoE 52
  54. 54. Expansion into mobile broadband Virgin Media Communication & Entertainment Virgin Mobile Virgin Media MVNO Network DTV & VOD Mobile Mobile Broadband Voice & TXT Telephony Broadband The UK’s leading Communication & Entertainment network 53
  55. 55. Looking into the future … Existing Existing Linear & On-Demand TV Ultra-fast Broadband (DVB-C) (DOCSIS 3.0) Home Home Gateway IP Home Network PC or ipSTB Portable Laptop TV Device Bring both halves of our powerful access network together into an integrated next generation entertainment experience 54
  56. 56. …next generation entertainment Broadcasters & Advertisers will be able to create an entertainment experience which can move effortlessly between all of their TV assets and all of their web assets Its not about putting the Internet on your TV nor about putting the TV on your PC. Its about enabling broadcasters to create the next generation of entertainment for whenever and wherever you want to enjoy it55
  57. 57. Building a Customer Focused Organization
  58. 58. 2008 – 2012 operational transformation review • To create a new operating model for our organisation which delivers significant improvements in: – Customer focus – Product delivery and management Our vision Our vision – Clearer accountabilities leading to streamlined decision making • Supported by better processes, making considerable savings Proposed key initiatives • Refocus organization on product delivery • Invest in holistic approach to sales channels supported by “customer insight” • Converge mobile and cable marketing Customer growth Customer growth • Drive efficiencies across operations • Further cable and mobile operational integration • Call volume reduction through removal of root cause quality issues • Focus on first call resolution Customer service Customer service • Improve resource management – work scheduling and despatch • Supply chain transformation • Transformation of IT support • Rationalization of property portfolio Support functions Support functions • Review support functions: Transaction services Total annual P&L savings by 2012 >£120m Goals Goals Net reduction in roles in the organization by 2012 2,200 57
  59. 59. 2008 – 2012 operational transformation: Proposed new operating model Customer Provide Platform Operations Customer Contract Management Research and Consumer Insight Sales & Marketing TV / On Demand Broadband Telephony Develop Proposition Integrated Product Work Strategy Install & development Management Shared Services Repair Product and Operations Delivery Product Proposition Connection Scheduling & Pricing Product Planning & Implementation Operations Delivery Network Planning Network Monitoring and Fault Provision & Maintain Core Network Management Operations Support Programme People & Org Procurement & IT CTO Facilities Finance Legal office Development Supplier Mgt 58
  60. 60. Strategic objectives for growth • Guides our people and customer experiences Brand is front • Drives our cultural and centre development Build growth Manage our plans around business more segment effectively strategies • Insight and knowledge led • Integrated planning and performance Excite and delight people with management • Based around customers needs our easy to use, irresistible and wants from acquisition through the full customer journey customer propositions that drive profitable growth End to end P&L Execute and Product brilliantly Management • Manage product P&Ls • Multi-skilled growth contact centres • Drive strategy, innovation, delivery • Integrated customer journey and interface Strengthen our and customer experience with Care delivery • Clear accountability • Multi-channel distribution capability • Invest in Online experience • Faster deployment of products and services 59
  61. 61. 2008 – 2012 operational transformation review: Customer growth • Focus on high value channels: invest in on-line channel • Maximize demand through multi-distribution approach Optimize sales channel Optimize sales channel • Segment intelligence based approach to reduce subscriber acquisition costs • Maximize complimentary channel approaches (e.g. Telesales scheduling lead closing visit) • Operate multi-skilled, in-house call centres • Review possible off shoring high volume, low complexity enquiries Call centres Call centres • Maximize revenue at each customer touchpoint • Leverage brand: Deliver Virgin customer experience at all customer touchpoints • Focused, integrated approach across all products: Media and Mobile Marketing Marketing efficiency • Optimize marketing spend change to reflect awareness and consideration gains and focus efficiency on high value segments • Combined reward structures • More integrated channel approach to selling e.g. field selling mobile with targets embedded Cable and mobile Cable and mobile in commission plans integration integration • Increased bundling and maximize upsell through segmentation and contact strategy work • Use Cable Broadband leadership to deliver complementary Mobile Broadband growth 60
  62. 62. Strategic objectives for Customer Service Customer touch points: Take control of • Call centres our customer • Install and service experience • Network Reduce costs Improve product through better reliability processes and systems • Supply Chain • Reduce defect rate Enable growth through • Customer self service • Equip staff providing a service to our • Consolidation customers that is always on • Automate and being unbelievably easy • Service levels to do business with Understand Manage change segment and brilliantly customer value • Differentiate service: • Multi-skilling • Higher value customers • Product introduction Get things right • Complexity of customer contact • Invest in Online experience • Customer education first time • Review our suppliers • Staff multi-skilling 61
  63. 63. Customer Service Proposed operating model vision Self Care Serve: in house in house outsource Offshore onshore In multi- 1st service house Will work closely with install line skilled INDICATIVE MIX Tiered Customer Product to agree and Care delivering in house ensure delivery of target 2nd In 95% first contact Offshore onshore line multi-skilled house NPS set by Proposition team resolution Network / Business 5% case in house management Work closely with Sales Data specialists and Marketing to Multi-skilled engineering teams cross sell and up sell Delivering end to end service to customers in geographic units Activate & Single Service and fault management Operate Field Resource & Supply Chain function responsible for network Network Management management and outage screening to improve network responsiveness Forecast Despatch Schedule Planning and Provisioning Demand Single end to end planning and provisioning Build Plan Design responsibility Resource planning and despatch services across regional field organisation Working closely with Technology to drive down obsolescence and continuously improve performance 62
  64. 64. 2008 – 2012 operational transformation review: Customer Service • Call reduction through simplification of billing and pricing • Improve 1st call resolution through investment in product reliability Reduce call volume Reduce call volume • Provide and promote self service on-line • Redefine install process and reduce defects • Integrate activities through multi-skilling first line agents Improve inbound call Improve inbound call • Differentiate high value, high complexity calls experience experience • Review outsourcing and off-shoring of lower value, lower complexity calls • Schedule and support teams to provide improved customer appointment times • Fewer hand-offs as schedule and support team own customer contact once job is Improve resource Improve resource scheduled to field management management • Field delivery – take control of customer activity and field delivery and field delivery • “Perfect visit” initiative to improve efficiencies and customer experience • “Premium install” initiatives to differentiate service to higher value customers • Consider consolidation of warehouses • Improved control of CPE and recovery of assets Supply chain Supply chain transformation • Review efficiency of suppliers and purchasing transformation • Improve planning process to update inventory systems with network asset data Planning & network Planning & network • Integrate outage surveillance to improve network responsiveness to customer impacting management management faults 63
  65. 65. 2008 – 2012 operational transformation review: Support functions • Reduced volume through improved prioritization and efficiency • Consider transformational outsourcing of tech services Transform IT support Transform IT support • Review duplication of functions e.g. local tech teams, program mgt and technical delivery and technical delivery • Improved permanent: contract staff ratio • Consider consolidation of multiple sites • Property strategy developed alongside growth and customer operations plans to maximise Rationalize property benefit Rationalize property portfolio portfolio • Consider home-working solutions with meeting facilities at local sites where possible • Increase quality and utilization of biggest regional offices • Review of support functions: Finance, HR, Corporate Function • Introduce new integrated shared services function Review support Review support • Consider outsourcing certain transaction services functions functions • Create a single employee service group 64
  66. 66. Q&A
  67. 67. Non-Consumer Assets, Financial Structure and Flexibility Charles Gallagher – SVP Finance
  68. 68. Overview • Valuable non-Consumer assets • Seeking significant cost savings from Operational Transformation • Sensibly investing for growth • Successfully secured senior credit facility amendment • Strong cash flow generation 67