NTL Buys Virgin Mobile in Latest Convergence Play

Taking the convergence of cable and telecommunications to a new level, British cable provider NTL will buy Virgin Mobile, a move that will enable it to roll out a four-pack of services under a single brand.

The stock-and-cash deal was valued at about US$1.67 billion, making it relatively small in comparison to some recent deals in the telecom space. The price tag reflects the fact that Virgin Mobile does not operate its own wireless network but instead buys access on T-Mobile’s network and re-sells it under the Virgin brand.

Unified Brand

However, buying Virgin Mobile — in conjunction with a side deal to license the Virgin brand in other areas — is seen as significant because it will enable NTL to sell broadband access, cable television, fixed-line telecommunications and wireless calling to UK customers in a single bundle and under a single brand.

NTL said the move would help transform it “into a national entertainment and communications company.”

“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,” said NTL Executive Chairman James Mooney. “There is a natural appeal for mobile, telephony, broadband and television content and NTL is now truly unique in its mass market product offering.”

That uniqueness probably won’t last. In fact, thanks to recent telecom mergers, some U.S.-based companies can already offer similar lineups to the one NTL boasts.

AT&T, for instance, delivers fixed-wire line calling, mobile services through the Cingular and AT&T Wireless brands and is starting to roll out its own fiber-optic-based TV service. Verizon has a similar lineup of product offerings, with its FIOS fiber optic delivery service set to add television channels to its menu.

Happier Customers?

NTL has pursued the mobile carrier for several months now, according to reports, with an earlier deal, valued at around $1.4 billion, not accepted by shareholders.

NTL — which is still in the process of buying UK ISP and cable operator Telewest — said it expected the addition of Virgin Mobile to enable it to advance development of next-generation converged services as well, ones that give customers access to entertainment content across more than one platform, letting them, for instance, access video-on-demand from their mobile devices or have a single contact number for their fixed and wireless phones.

Virgin, the company and brand made famous by adventure-seeking founder Richard Branson — who has slapped the name on everything from music stores to airlines — will receive an ongoing annual royalty for licensing the brand name to NTL worth at least $13 million annually.

Based on his ownership in Virgin Holdings, which owns 71 percent of the mobile company, Branson will be a 10 percent owner of the new company.

NTL may benefit most from the customer service expertise and brand image of Virgin, with NTL often scoring poorly on customer service measures. Addressing that issue may help NTL cut down on customer “churn,” the rate at which people leave the service.

Bundle of Joys

Though bundling and convergence have been buzzwords in the telecommunications space for some time, they are becoming a reality thanks to major shifts in the industry, telecom analyst Jeff Kagan told the E-Commerce Times.

“For a long time, convergence and all-in-one services were ideas that many people believed in even though they couldn’t see it in the marketplace,” he said. “Now we see a lot of carriers coming to the same point of being able to actually offer it.”

Providers have taken different routes to that same destination, he added, with cable companies using VoIP to round out their TV-based offerings and traditional telcos only now starting to roll out their versions of cable television services.

Consumers have long said in surveys that they would prefer the convenience of buying all their communications-related products from a single provider, but whether or not they will may depend on how well carriers can put together strong packages of services. In other words, even strong brands will only carry a company so far.

“People won’t just buy bundles for the sake of convenience,” Kagan said. “They will favor the brands they trust, but they will also want to know they’re getting the best services available.”