BT Thursday reported a 2% rise in fourth quarter group revenue to £5.42 billion from £5.29 billion a year earlier, above analysts’ expectations.
Still, group profit for the three months ending 31 March declined 18% year on year to £494 million from £601 million, which the company attributed to a rise in operating costs, and leaver costs.
The U.K. incumbent said earnings per share during the quarter rose 11% on year to seven pence, with free cash flow increasing to £1.7 billion – a rise of 9% from the same period a year earlier.
The company also raised its full year dividend 5% on year to 15.8 pence per share.
“Free cash flow is the best we’ve seen in the last six years,” said Ben Verwaayen, CEO of BT, during the company’s results presentation.
He attributed BT’s fourth-quarter results to a strong performance from its Global Services business, which provides managed IT and telecoms services to enterprises.
“Global Services now serves 60% of the Fortune 500,” said Verwaayen, who commented that BT had signed up 260 enterprise customers, or £2.8 billion worth of contracts, in the fourth quarter alone.
Revenue at the unit increased 10% on year to £2.23 billion from £2.03 billion, the highest quarterly growth for over two years, according to BT.
The performance of Global Services underpins BT’s transformation into a software and services-led company from a traditional telecoms player.
Verwaayen highlighted that traditional voice calls contributed 11% of the group’s fourth quarter revenues, a percentage now virtually equalled by its broadband business, while IT services made up 22%.
“The whole nature of our revenue has changed dramatically,” he added.
“The results are better than we expected,” Scott Morrison, research vice president at Gartner, told Total Telecom.
Yet, while Global Services was the highlight of BT’s results, it still only managed to raise its quarterly EBITDA margin by 0.4% on year to 13.7%.
“Revenues might be growing but the margins aren’t,” said Morrison.
“The numbers are moving in the right direction, but they’re just not moving fast enough,” he added.
BT Retail showed a third successive quarter of revenue growth, rising 2% on year to £2.16 billion from £2.12 billion a year earlier, while revenue at its wholesale division continued its steady decline, falling 12% year on year to £1.18 billion from £1.34 billion.
“The decline is being driven by the continued drive to LLU (local loop unbundling), and ongoing price reduction,” commented Hanif Lalani, BT’s CFO.
Openreach saw flat EBITDA on year, and revenue fall 1% to £1.320 billion, from £1.336 billion a year earlier.
One surprise came in the form of BT Vision – which saw an influx of new subscribers.
“In this quarter our net additions were 94,000, which is more than Sky and Virgin put together,” said Verwaayen.
The total installed user base for BT Vision has now reached 250,000, according to BT.
Still, with BT’s commitment to its next-generation network, 21CN, capital expenditure will continue to be an important issue.
“BT has started something it can’t stop, it has committed to that £10 billion investment in five years,” said Morrison.
Lalani said that BT expects capex of £3.1 billion during the next financial year, adding that if it could reduce this figure to below £3 billion by 2010, they will have made “good progress.”
For the financial year 2008-09, BT said it expects revenue growth to remain positive, and free cash flow to remain relatively flat.
Verwaayen said that the company expects to generate cost savings of £700 million, up from £625 million during the financial year 2007 to 2008.
Company chairman Sir Michael Rake took an opportunity during the results presentation to praise Ben Verwaayen, who announced his resignation as BT’s CEO in April.
“There is absolutely no doubt that Ben has completely reinvented this company,” he said.
“When [Ben] took over, BT was a bit like a rudderless ship – it had no mobile business, and no revenue growth engine. He, and the team he brought in really turned the company around and drove BT ahead of the competition in terms of the kinds of services they began to offer,” said Morrison.
Verwaayen’s successor BT Retail CEO Ian Livingston said he will focus on making the company more agile.
“We need to focus on our attitude to our customers, to our costs, and frankly, to our speed,” he said.
“We have to move at the speed of software…we’re in a software world now, not a telecoms world,” he commented.
“With Livingston at the helm I think we’re going to see a period of consolidation for BT,” said Gartner’s Morrison.
He explained that while Verwaayen took risks, made acquisitions and concentrated on the top-line, he expects Livingston to reign in the spending on inorganic growth and focus his attention on the bottom-line.
“BT still has a segmented approach to its customers, so I expect Livingston will address this by streamlining the company and simplifying its operations,” he commented.
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Virgin Mobile USA Inc. said Wednesday it is in preliminary talks with South Korea’s SK Telecom Co. about possible “strategic options,” a phrase that usually suggests a buyout or major investment.
Shares of Virgin Mobile rose 33 cents, or 11 percent, to close at $3.37 after initially jumping 47 percent on the news.
The U.S. wireless unit of Richard Branson’s Virgin Group, which went public at $15 per share last October, said the talks are in early stages and it will have no further comments until a deal is reached.
SK Telecom is South Korea’s largest mobile phone service operator by subscriber numbers. It’s also the majority owner of Helio LLC, another U.S. cell-phone company, which could be combined with Virgin Mobile. Helio spokesman Rick Heineman confirmed that SK Telecom, Virgin Mobile and Helio are all in discussions.
Virgin Mobile had 5.1 million customers at the end of March, making it one of the largest U.S. “mobile virtual network operators,” or MVNOs. Rather than owning their own network, MVNOs buy wholesale airtime from other carriers. Virgin Mobile uses the Sprint Nextel Corp. network, as does Helio.
Virgin Mobile specializes in marketing prepaid plans and postpaid plans without contracts to younger customers.
Last week, Virgin Mobile’s stock tumbled after it posted lower first-quarter earnings and said it expects to lose between 130,000 and 160,000 net subscribers in the second quarter.
Helio started out in 2006 as joint venture of EarthLink Corp. and SK Telecom. Its aim was to bring the sophisticated features of Korean phones to the U.S., but the venture has had a slow start. It January, it said it had “nearly” 200,000 subscribers.
A number of other companies have tried the MVNO business model, and success stories are few. Amp’d Mobile, ESPN Mobile and Disney Mobile have all shut down.
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Virgin Mobile USA is in talks with SK Telecom over a possible deal involving Helio, the U.S. mobile operator that gears itself toward affluent youngsters but has struggled to make a profit since its launch.
The talks, which could potentially lead to an acquisition or an investment, are in the early stages, and Virgin said Wednesday that it didn’t expect to comment further unless an agreement is reached.
Helio was founded by SK Telecom and EarthLink in 2005 and launched the following year. It is known as a mobile virtual network operator (MVNO) because it rents capacity from a third party rather than owning its own network. SK Telecom became the majority owner after EarthLink reduced its ownership to 22 percent last year.
Both SK Telecom and EarthLink have sunk hundreds of millions of dollars into Helio, which continues to post losses despite boasting some of the best customer spending and usage metrics in the mobile industry.
At the end of last year, Helio said its users spent more than US$85 per month, compared with an industry average of $50. Helio customers send an average of 550 text messages per month, and 95 percent of Helio users access the Web from their phones, the company said at the time.
Still, EarthLink expected Helio to report a year-end loss for 2007 of as much as $360 million on revenue of as much as $170 million. That’s after SK Telecom and EarthLink started the company with a combined $440 million. Since then, both companies have made additional investments in Helio.
Virgin Mobile USA’s earnings for the first quarter were down from the same period a year earlier. It had 5.1 million subscribers in the first quarter, compared to Helio’s 200,000 at the end of 2007. Like Helio, Virgin Mobile USA is also an MVNO, and both use Sprint’s network to deliver their service.
The companies have different types of customers, however. While Helio is after big-spending mobile users, Virgin offers only prepaid services and targets people looking for a lower-cost service. Combining the companies could allow the new entity to offer both pre- and post-paid service and attract a wider spectrum of the market.
Helio and Virgin aren’t the only struggling MVNOs. Amp’d, which was also geared toward young mobile users, filed for bankruptcy and then shut down last year. Other MVNOs such as ESPN Mobile and Disney Mobile have suffered similar fates. In addition, Qwest dealt a blow to the concept of MVNOs earlier this month when it decided to stop selling its own branded mobile service, using Sprint’s network, and begin selling service branded by Verizon.
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UK-based Virgin Group is preparing to announce a WiMAX wireless broadband partnership in Russia. A report from Russian Business says that Virgin is setting up a venture with local wireless ISP Trivon, in which Virgin has a stake. WiMAX networks will be deployed in 30 Russian cities, the report suggests.
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Nortel revealed it is working with Virgin Media and Juniper Networks to increase the operator’s capacity to 40Gbps, up from 10Gbps. The North-South UK is in response to the increasing demand for bandwidth-intensive entertainment services, including video-on-demand, catch-up TV, multimedia communications and faster internet access, with 20Mbps and 50Mbps trials.
The 40Gbps trial was conducted over a 350km span of Virgin Media’s existing 10G network in the UK, showing how existing optical network assets could be optimised and the network scaled to achieve high transmission rates.
Nortel confirmed it provided 40G Adaptive Optical Engine DWDM transponder cards, which interconnected with Juniper Networks T-series routers with 40G interfaces located at sites in Manchester and London, for the trial.
The trial was conducted last month, carrying 40G traffic generated by Virgin Media and delivering over its long-haul optical network between Manchester and London. Virgin Media claimed it is the first UK operator to offer 40G wavelength services between UK locations and confirmed it is now looking to deploy, enabling it to continue to grow and scale new premium-quality business and entertainment services.
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After Sir Richard Branson gratified the local media with his antics—he scaled the face of the Hilton Towers in Mumbai—the Virgin Group founder climbed down to announce his biggest move in India yet. He has become a franchisee of Tata Teleservices, a domestic telecom player providing CDMA cellular services. This is Virgin’s third India play after Virgin Air’s India routes and a radio station, Fever 104 FM. And it’s Virgin Mobile’s seventh telecom market. Others include the U.S., France, and South Africa.
Virgin Mobile’s Indian service is targeting the 400 million Indians between the ages of 13 and 30 who, Branson says, the country’s current telecom operators have been ignoring. Hence Virgin Mobile ’s catchy tagline: Think hatke, Mumbai slang for “think out of the box.” The company will be offering handsets by Nokia (NOK), Samsung, and Huawei Technologies, most of them black phones with red trim that will cost between $60 and $120 each. They have full-color screens and FM radio access—to listen to Fever 104, no doubt.
Virgin’s team of 250 researchers spent nearly nine months studying their target audience. They discovered that Indian parents take away their children’s cell phones at night and read the text messages they send or receive—something kids hate. Virgin’s value-added service is offering a password-protected folder to the young so parents cannot read their messages. Great for the kids, too bad for the parents.
Fastest-growing cellular market
Virgin thinks this new feature is not an obstacle. For one thing, parents can decide whether to let their children use the service. “This is to get under the skin of our target audience, but there are other parts of the service that parents will like, particularly the affordability,” says Jamie Heywood, deputy chief executive of Virgin Mobile India. Best of all, the text messages will be the cheapest in the market, 30 paise, or less than one U.S. cent, affordable even to young rural Indians. Weekend call rates will also be 30 paise.
The market numbers are compelling. Out of India’s total cellular user base of 242 million, 215 million are between 15 and 25 years old. And with India being the world’s fastest-growing cellular market—India adds 8.7 million subscribers a month, and the number of cellular subscribers grew nearly 50% last year—the youth market should grow another 50 million by 2010, drawing revenues of an estimated $8.75 billion. “If you can’t make it in India ,” said Branson, “you won’t make it anywhere.”
In order to make it in India, though, Branson has had to forge an unusual deal with Tata. Because India ’s telecom regulations do not permit Virgin to do what it does in other markets—buy minutes from operators and resell them to consumers (what’s called in industry parlance a Mobile Virtual Network Operator arrangement)—Virgin has gone the franchise route. The partners won’t discuss the financials or the revenue-sharing structure. Still, others eager to invest in India ’s hot telecom market could follow that same route. Russian telecom player Sistema has just bought a stake in a domestic Indian player and Egypt’s Orascom is rumored to be interested in entering the Indian market.
Lagging behind reliance
Getting the Virgin franchise could provide a much needed lift for Tata. Other companies in the Tata Group dominate their industries: Tata Steel, for instance, is the country’s top steelmaker and Tata Motors has recently won global acclaim for its groundbreaking low-cost car, the Tata Nano.
However, Tata’s cellular operator has been a laggard. The company has just 25 million subscribers for its CDMA service (the second-generation cellular standard operating on technology developed by San Diego’s Qualcomm. That’s just half the 46 million subscribers to market leader Reliance Communications.
Tata had an early start but it was not as aggressive as Reliance. More recently, though, it has been competing fiercely, especially in value-added services. Reliance is also starting to focus on its GSM, or global system for mobile, services, the most popular cellular standard worldwide, which is where the majority of India’s telecom players, such as market leader Bharti and No. 2 player Vodafone compete.
Custodians of the Virgin brand
Tata executives now hope Virgin, with its clever approach to marketing and expertise in handling customer service, will help close the gap with Reliance. While Tata’s existing customers won’t automatically switch to Virgin, they will have access to some of Virgin Mobile’s services, and calls between Tata and Virgin subscribers will be free. “We are custodians for the Virgin brand,” says Anil Saldhana, chief executive of Tatatele Services. “So all value-added services we develop can go to Virgin, too.”
For Virgin, the franchise arrangement with Tata provides access to the Tata Group’s vast nationwide distribution system, an advantage the British company could never have had on its own. Virgin and Tata intend to launch immediately in 50 Indian cities and reach 1,000 cities by the end of the year.
Most importantly, Virgin won’t be bothered with infrastructure challenges, the biggest headache of doing business in India. And Virgin won’t have to deal with the country’s regulators because Tata will be responsible for receiving all the regulatory approvals. Branson says all the cellular operators he has used while in India, except for Tata, suffered from a high number of dropped calls. That of course is more a problem with the Indian government not releasing enough bandwidth than investments by operators.
But Tata, as Branson points out, has a lot of capacity. It’s better to have fewer customers and higher capacity in a growing market like India. And, Heywood adds, “It creates network space for us.”
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A deal between Richard Branson’s Virgin Mobile and Tata Teleservices Ltd. to sell wireless services in India may be declared void by the Indian government, the London-based.
The Indian Ministry of Communications and Information Technology has requested details about the agreement after the Cellular Operators’ Association of India argued the deal is illegal.
The Cellular Operators’ Association says Virgin is buying mobile capacity wholesale from Tata and then selling it under its own brand, an arrangement not allowed in India.
Though no decision has been made by the ministry, an unidentified ministry spokesman said it’s possible Virgin will not be allowed to operate.
An unidentified Virgin Mobile India spokesman said the agreement, which was announced on March 2, doesn’t involve selling bulk airtime, the newspaper reported. Virgin and Tata insist they have a legal franchise agreement.
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Virgin Group chairman Richard Branson announced Sunday the launch of Virgin Mobile in India through a partnership with Tata Teleservices.
“Tata has got the network, we have got the brand…it makes a win-win for both companies,” said Branson.
However, Virgin and Tata both insisted the agreement will not see Virgin Mobile operate as a mobile virtual network operator (MVNO), which is not permitted in India.
Instead, Tata will sell Virgin-branded mobile services as part of a revenue-share agreement.
“This is not an MVNO agreement between Virgin and Tata Teleservices,” said Anil Sardana, managing director of Tata Teleservices.
“Virgin Mobile is just another brand that the company would offer, it is us who will invest in infrastructure and get regulatory approvals and operate as a network service provider. Virgin on its part would just lend its brand and the value-added services (VAS) that come with it to us,” he commented.
However, both companies declined to disclose the exact details of their revenue-sharing agreement.
Virgin Mobile’s Indian operation will be targeted at the youth market, offering music and game downloads to appeal to a younger demographic.
It has set a target of attracting 5 million customers in the first three years.
“India is an exciting market. There are more than 215 million Indians aged between 14 and 25 years. Over the next three years, we expect this segment to be adding over 50 million new youth subscribers and to have revenues of over 350 billion rupees (€5.75 billion),” said Branson.
Branson revealed last November that Virgin Mobile had found a telecoms partner for its Indian venture, although the regulation of foreign ownership of Indian businesses proved to be a source of frustration for the entrepreneur.
Tata offers mobile services across India through its Tata Indicom brand which according to the Economic Times serves 22.5 million customers, representing a 9.3% market share.
“It’s the size of the market that is attracting so many foreign companies to India… The growth is going to be here in the coming years, compared with the U.K. and the U.S. where it has plateaued,” said Harit Shah, an analyst at Angel Broking in Mumbai, to the Hindustan Times Sunday.
According to the Telecom Regulatory Authority of India (TRAI), the country added a total of 8.17 million mobile subscribers in January, bringing the total user base up to 242.4 million.
Tata’s services are CDMA-based, however Branson said he is keen on entering the GSM sector as well.
“It’s a pain to do GSM at the moment because the network is completely full,” he said.
“In another nine months, when the new GSM players start rolling out their services, we would look to offer similar services on GSM as well,” he added.
However, Branson will have to wait for India’s final decision on how best to distribute additional GSM spectrum.
Delhi’s High Court in January delayed ruling on an ongoing spat between the country’s CDMA and GSM providers over which operators should be entitled to receive extra chunks of 2G GSM bandwidth.
The row was sparked off specifically by the government’s decision last October to allow CDMA operators to apply for GSM spectrum.
The move is opposed by GSM industry body the Cellular Operators Association of India (COAI), which is driven by the country’s biggest GSM operators such as Bharti Airtel, Vodafone Essar and Idea Cellular.
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- January 9th, 2008
- 2:50 pm
Omer Telecom, which runs the French MVNOs Virgin and Breizh, passed the milestone of over 800,000 subscribers at the end of 2007. Virgin Mobile finished the year with almost 700,000 customers and targets reaching 2 million by 2010, while Breizh Mobile has attracted around 105,000 customers. Virgin Mobile CEO Geoffroy Roux de Bezieux told AFP that the company is running ahead of its business plan, which had projected 1 million customers at the end of 2008. He now expects to pass that number in the course of this year. Among the Virgin Mobile customers, some 31 percent are first-time users, having never taken a mobile service before. The customer profile is an average age of 35 and monthly spend of EUR 21, with SMS traffic of some seven times the national average. According to the CEO, the Christmas season proved an aggressive market with the company spending more than planned on sales. Virgin Mobile plans to also double its marketing budget this year to around EUR 40 million and add around 100 staff to the existing 750 employees.
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- December 10th, 2007
- 2:27 pm
Virgin Media has signed a five-year managed network telephony agreement with BT Wholesale. Under the agreement, BT Wholesale will manage the operation and maintenance of Virgin Media’s UK fixed-line voice switching network, as well as a number of Virgin Media’s existing support contracts with specialist third-party hardware and software suppliers for transmission equipment on its behalf. The overall value of the contract is an estimated GBP 98 million, and will allow Virgin Media to enjoy significant cost savings as well as focusing on developing the future of its voice network business. Some 184 skilled Virgin Media employees have transferred to BT Wholesale as part of the agreement.
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BT Q4 profit falls 18%; revenue, EBITDA rise
