Now with added video!
UK telecoms regulator Ofcom has fined EE and Virgin Media millions of pounds for excessive early-exit charges.
Churn (loss of customers) is a constant worry for communications service providers and the best way to reduce it is to provide such a good communications service that subscribers don’t want to leave. Another way is to make it so odious and costly to leave that most people just can’t be bothered with the hassle and it seems EE and VM went a bit too far with the latter strategy.
Ofcom says it’s OK for CSPs to attach conditions to the early exit from contracts, but that those must be ‘clear, comprehensive and easily accessible’. Furthermore Ofcom stipulates “Communications providers shall ensure that conditions or procedure for contract termination do not act as disincentives for end-users against changing their communications provider”. It thinks thinks that’s what happened with EE and VM, which is why it has fined them £6.3 million and £7 million, respectively.
“EE and Virgin Media broke our rules by overcharging people who ended their contracts early,” said Ofcom’s spectacularly-named Director of Investigations and Enforcement, Gaucho Rasmussen. “Those people were left out of pocket, and the charges amounted to millions of pounds. That is unacceptable. These fines send a clear message to all phone and broadband firms that they must play by the rules, in the interests of their customers.”
VM doesn’t see it in quite the same way and is appealing the ruling. “We profoundly disagree with Ofcom’s ruling,” said Tom Mockridge, CEO of Virgin Media. “This decision and fine is not justified, proportionate or reasonable. A small percentage of customers were charged an incorrect amount when they ended one or more of their services early and for that we are very sorry.
“As soon as we became aware of the mistake we apologised and took swift action to put it right by paying refunds, with interest, to everyone affected. For those few people we could not locate, we have made an equivalent donation to charity. We also reviewed our internal processes and systems, and improved our customer communications to make sure that this does not happen again.
“We wholeheartedly reject the claim by Ofcom that our ETC levels dissuaded customers from switching. This unreasonable decision and excessive fine does not reflect the swift actions we took, the strong evidence we have presented, or our consistent, open and transparent cooperation with the regulator. We will be appealing Ofcom’s decision.”
EE hadn’t sent us a statement at time of writing, nor had it issued a press release. Read into that what you will but the fact that Ofcom reduced its fine by 30% in return for it not kicking up a fuss would seem to be significant.
Mockridge’s moan can be interpreted in a few ways. Taken at face value it’s easy to feel some sympathy. If indeed it was a small, innocent mistake that VM moved to correct as soon as it was aware of it, then the fine does seem excessive. If, however, VM knew what it was doing and thinks it should be able to get away with it just by saying sorry after it was caught, then it doesn’t.
At the very least the relative fines seem disproportionate. EE over-billed 400,000 of its customers for a total of £13.5 million in early exit charges over a six year period, while VM only rinsed 82,000 of its punters for £2.8 million in less than a year. Surely the scale of EE’s breach was far greater and it looks like it’s being too generously rewarded by Ofcom for its capitulation.
The UK market proved to a be a success over the last three months for Liberty Global, though the same could not be said for the Belgium and Swiss operations.
Total revenues for the quarter stood at $2.9 billion, a 1.3% increase, with the UK business posting 3.6% growth. While this might sound positive, this is compared to 10.8% for the nine months of 2018 proving there is appetite in the UK for a full-fibre diet. Unfortunately, the success could not be replicated elsewhere, with the Belgium business dropping year-on-year revenues by 1.5% and the bottom falling out of the Swiss bucket with a 8.1% decrease.
“The Swiss market remains challenging but we have a number of initiatives that we believe will improve performance,” said CEO Mike Fries. “Our turnaround plan is underpinned by revamped video products, a refreshed MySports programming line-up, the launch of 1 Gig broadband speeds and a new and improved MVNO offering.
“The continued operating and financial momentum at Virgin Media helped fuel our Q3 results. With respect to our U.K. subscriber growth, we generated over 100,000 net additions, which represents a record third quarter performance. This achievement was supported by strong volume growth in both our Project Lightning and legacy footprints.”
Looking specifically at the UK business, cable revenues declined by 0.7% year-on-year to $2 billion, while mobile revenue increased 2.4% to $416 million and enterprise revenues were up 6.1% year-over-year to $491 million. Operating income decreased 4.8% year-over-year to $592 million, though with promising growth on the top-line, and an additional 109,000 subscribers to account for, overall you could say a good three month’s work.
With Liberty Global still on course to dispose of its businesses in Germany and Central Europe to Vodafone, the team might be able to turn more attention to the troublesome Belgians and Swiss.
Virgin Media and Durham County Council have agreed an out of court settlement which will see the telco pay a nominal £1 sum to access land owned by the local authority to lay new ultrafast broadband cables.
The case is the first test of the updated Electronic Communications Code, which was amended in 2017, legislation designed to simplify the process of rolling out future-proof communications infrastructure. Gaining access to existing infrastructure for upgrades is an issue which has plagued the industry for years, with telcos claiming land owners charge disproportionate fees, as well as taking the opportunity to increase rent due to a change in the inventory of the assets.
With the out of court settlement creating more favourable terms for Virgin Media, the hope is precedent will be set throughout the industry, removing an administrative barrier to deployment which has proved expensive.
“This agreement with Durham sets a much needed precedent which will speed up broadband rollout and encourage investment,” said Tom Mockridge, CEO of Virgin Media. “We hope that other local authorities and landowners now follow Durham’s example.
“Most importantly, this is fantastic news for the residents and businesses of Durham as we can now continue the good work we started with Durham Country Council and bring a real broadband boost to local communities across the county.”
“Following the reforms it was important that, as a local authority, we were able to test and understand the implications of the new code,” said Durham County Council’s Head of Planning and Assets, Stuart Timmiss. “Working closely with Virgin Media and our legal team we are happy to be able to move forward in ensuring our businesses and communities can benefit from superfast broadband.”
The case first emerged back in June, with Virgin Media hoping to expand its fibre network to 16,000 properties by the end of 2019 as part of Project Lightening, though with the council charging what the telco described as a ‘hefty’ per-metre levy progress slowed. Other telcos in the UK will likely look at this development with excitement, and hope other administrative hurdles can now be addressed.
EE is another telco which is currently taking the legal route to address one of these hurdles. Tom Bennett and Howard Jones highlighted to us a couple of months ago, EE is challenging a currently unnamed entity in the courts over rent re-negotiations land owners are forcing on telcos when inventories change in existing assets ahead of necessary upgrades. Land owners, or more commonly the agents, are using the opportunity to increase rent knowing the telcos have little choice in the matter.
“The benefits of bringing 4G and high speed broadband to an area are in improved connectivity and the innovation opportunities they can bring to businesses, local authorities and the wider community – not in any landowner opportunistically charging more money in rent,” said an EE spokesperson.
“This settlement is a positive step forward for enforcing operators’ new Code rights.”
Vodafone UK General Counsel and External Affairs Director Helen Lamprell is another who has found issue with the legislative and regulatory landscape of the UK, stating it is the most difficult region she has had to work in.
“The regulatory environment in the UK is not conducive to infrastructure investment,” said Lamprell, during a briefing in June. “The right balance has not been found yet.”
Vodafone’s issues are not only focused on access charges and ransom rent, but also the height of masts. As it stands, the tallest cellular masts in the UK are less than half the height of the same structures in Germany, a critical component when attempting to increase coverage; for every ten metres you go up, the coverage roughly doubles. Vodafone is not suggesting it wants to pepper the landscape with these monstrous structures, but by increasing the height of the masts the less sites you actually need.
While certain aspects of the UK’s legislative environment seem contradictory to government ambitions to increase connectivity quality and coverage, the success of the Virgin Media legal team demonstrates the updated Electronic Communications Code is doing its job. Perhaps the other hurdles can now be addressed.
Virgin Media seemingly tried to usher through some profitability in its negotiations with UKTV over programming, but the cost-cutting quest could have some wide-ranging repercussions.
It is certainly a delicate tight-rope to walk. The much-hyped convergence business model is one which is supposed to attract new revenues, though how much investment should be committed to making the alternative offerings attractive to the customer? Any additional streams to a telcos business model need to be striking and engaging to the user, but over-spending could complete negate any benefits, as BT’s former CEO Gavin Patterson found out.
A very public disagreement between Virgin Media and UKTV seems to be based around the telco trying to strike this balance. In attempting to only secure the free channels for its TV platform, Virgin Media essentially ended any agreement between the two to secure UKTV programming. And the impact has been notable.
UKTV claims to have received more than 50k Twitter mentions on the topic, many of them condemning Virgin Media’s decision to degrade the content experience, while there were several comments on a story we wrote on the saga, with readers suggesting this would be the end of their relationship with the telco. Research from Kantar TNS also suggests there will be a negative impact.
Although you have to bear in mind this research was commissioned by UKTV, it will be slightly biased, Kantar TNS reports 43% of the respondents are considering cancelling their Virgin Media subscription as a result of the lost channels. 64% felt UKTV channels were an important part of the Virgin Media TV package, with 41% claiming they watched the content more than once a week. 65% believe the replacement content is worse than what was being offered by UKTV.
Overall, this is a prime example of convergence done badly. Your correspondent can testify to the fact, as a former Virgin Media customer, the TV offering was nothing more than okay. Dave and Alibi are channels which do provide good content, and perhaps this is the issue with the Virgin Media platform on the whole. There simply isn’t the breadth of quality content which you can consume in comparison to other content platforms, such as Sky.
Convergence is a very good way to improve customer retention and also bring ARPU up, but when it is done badly the risk of damaging the overall brand and subscription numbers is high. With the accessibility and variety of content platforms on the market now, telcos can ill afford to produce a substandard offering. It risks more than reputational damage in that one vertical, the ripples can spread throughout the business.
That said, according to tech and telco analyst Paolo Pescatore, these spats are not uncommon:
“These carriage disputes occur more frequently than we realise. The content owner wants more money while the platform provider wants to pay less. Ultimately the consumers who pay for Virgin TV missing out. And this is not good for either party given how quickly this dispute has escalated and in public. Arguably, Virgin media has more to lose than UKTV.
“Undoubtedly we are going to see more of these issues. More so as content and media owners look to offer their own content on an exclusive basis through their own direct to consumer services, OTT.”
The negative consequences could be avoided by Virgin Media. If negotiations are reopened (UKTV confirmed lines are open, but the conversation is not happening at the time of writing) and the channels reinstated on the platform, it will probably be able to salvage the relationship with the customers. But should it decide it can get by without UKTV, there could be an impact on the spreadsheets.
Not all of the customers will follow through with threats to ditch Virgin Media, changing suppliers is made too much of a cumbersome and frustrating process by the telcos, but it will be interesting to see what the impact of badly done convergence is.
The relationship between Virgin Media and UKTV came to an end this weekend, though mixed messages are flying all over the place as the PR machines crank into full flow.
UKTV’s programming on the Virgin Media TV platform officially came to a close on Saturday night (21 July) as the pair were not able to come to a commercial agreement which satisfied both parties. Virgin Media is pointing the finger at UKTV, stating it offered a fair price, while UKTV has contradicted this point stating the offer on the table was substantially less than previous deals. You have to take each side of the argument with a pinch of salt, but we think we have gotten to the bottom of it.
When negotiating with content platforms such as Virgin Media, UKTV offers all of its channels in a bundle. There isn’t option to pick and choose, though this seems a perfectly acceptable situation in other relationships such as with Sky. Included in the UKTV portfolio are a number of free channels which the customer can access online, or through Freeview. This is where the issue lies. Virgin Media wanted to get the free channels and not bother with the premium ones.
Despite the fact the channels are popular with subscribers, viewing figures have increased over the last 12 months on UKTV’s premium content, Virgin Media wanted to degrade the content experience on its TV platform, while maintaining prices. UKTV is cranking the PR machine with statements which claim it is not fair for the consumer, but you have to feel some sympathy for UKTV; that’s not the way it makes money. It is not a charity or an NPO, why should it sacrifice its own profits for Virgin Media’s greed?
Interestingly enough, despite the fact Virgin Media claims the new deal would “result in a net zero impact” for UKTV, we were told simply having the free-channels on the platform would actually cost the company as it would have to pay for Electronic Program Guide (EPG) positioning.
Unfortunately for the Virgin Media subscribers, they are the real losers here. Some might comment the Virgin Media TV platform is sub-standard in any case, though removing channels such as Dave and Alibi is hardly going to help the situation.
In terms of the feedback, UKTV has received more than 47,000 mentions on Twitter, a notable percentage of which were from Virgin Media subscribers describing disappointment at the loss. Some subscribers apparently being told by customer services the content will be switched back on in a couple of days, but the UKTV team has no idea what the basis of this claim is. The relationship disintegrated on Saturday, and while the team is open to discussion, the negotiation is not on-going.
With Liberty Global selling a bunch of its German stuff to Vodafone it has decided to recycle an exec it would otherwise lose.
Lutz Schüler has been CEO of German cableco (and part of the above deal) Unitymedia since 2011. He has apparently done a decent job because Liberty Global has decided to resurrect the role of COO at Virgin Media in the UK to accommodate him rather than see him fall into the clutches of Vodafone. The same sentiment doesn’t seem to apply to Winni Rapp, who will replace Schüler having been CFO at Unitymedia.
“Since our initial acquisitions in 2009 and 2010, Unitymedia has grown revenue 60% and operating cash flow 80%, and has led the market in broadband innovation,” said Mike Fries, CEO of Liberty Global. “With the pending sale of our German business to Vodafone, Virgin Media takes on greater importance within our platform in Europe and we want the strongest team possible driving this business. I couldn’t be happier to keep Lutz in the Liberty family.”
“I’m excited to have Lutz join the Virgin Media team,” said Tom Mockridge, CEO of VM and his new boss. “His track record in Germany as an operator speaks for itself and he will provide a new level of marketing energy and leadership that will benefit Virgin Media customers and employees.”
“I’m thrilled to join the Virgin Media team and work alongside Tom,” said Schüler. “As I embrace this new challenge, I know that Unitymedia will be in strong, capable hands under Winni’s leadership.”
“Taking the reins at Unitymedia at this critical time is a great honour.,” said Rapp. “If you want to see the future of the TV and broadband business you need to look no further than Unitymedia. I will continue our proud tradition of innovation and our customers will be well served when Unitymedia and Vodafone join forces.”
Everyone seems pretty pumped about this little reshuffle don’t they? The COO role was previously filled, with Dana Strong having been promoted into it in March 2017. But that just seemed to served to enhance her professional profile enough to catch the eye of Comcast, to whom she defected less than a year later. Liberty Global will be hoping history doesn’t repeat itself with Schüler.
Virgin Media is the latest telco to cash in on the aggregator trend, building on a partnership with Netflix to allow customers to pay for the streaming service through their Virgin Media bill.
Starting in October, builds on a partnership dating back to 2013, with Virgin Media claiming more than 700 million hours of programming have been watched through the Netflix app on Virgin TV’s platform. The team might be stating it was the first to lure the Netflix goldmine onto its platform, but it has turned into a fast-follower when it comes to integrating bills, after similar announcements from BT and Telefonica in recent weeks.
“Virgin TV has always been about giving our customers the TV they love all in one place,” said Jeff Dodds, MD of Consumer and Mobile at Virgin Media. “We were the first to embrace this open philosophy by embedding Netflix into our platform back in 2013 and it’s clearly something that our customers absolutely love. By expanding our relationship further we’re forming an even deeper relationship with our friends at Netflix and giving our customers a simpler way to pay for the service.”
Such partnerships are likely to become much more common as the telcos search for the much-hyped convergence business model. Content is seemingly a critical factor of this business, though attempting to compete with the traditional players in the content market by owning rights and distribution deals is a treacherous path; just ask the BT consumer business. Instead, providing a channel to the consumer, a content aggregator, is becoming a more popular idea.
As one of the most, or arguably the most, popular content streaming business on the planet, integrating the service into the media platform is a very sensible idea. It answers a frustration of the consumer, the increasingly fragmented distribution of content across different platforms, while also adding to the Virgin Media content experience, which could be deemed average at best. The more partners telcos like Virgin Media add into the mix, the more engaging the content platform will become, which in turn should reduce customer churn year-on-year.
The key word here is scale, as quality is unlikely to be a differentiator over the coming years. We suspect all major telcos with a content platform will have similar partnerships with the likes of Netflix before too long, therefore the differentiating factor for customers when choosing a telco will be simplicity. The more partners mean more bills which can be streamlined into one place. Unfortunately providing adequate breadth for the content platform will need a considerable amount of leg-work; it will be a long slog, but the rewards of the convergence business model are already beginning to become apparent for companies like Orange and Sky.
Virgin Media has said it will be putting new clauses in the updated Electronic Communications Code (ECC) to the test as it takes Durham County Council to court over land access difficulties.
The disagreement between Virgin Media and Durham County Council surrounds the decision to expand the telco’s fibre network to 16,000 properties by the end of 2019. While there was support in the early stages of the project, the council is charging what Virgin Media describes as a ‘hefty’ per-metre levy, despite BT and other utility providers already having their pipes and cables installed in grass verges the Highways Department in Durham recommended as the build option to minimise disruption.
“We are disappointed to be taking this action against a Council with whom we initially had a good working relationship,” said Tom Mockridge, CEO of Virgin Media. “By demanding money for land access Durham County Council is now putting up a broadband blockade to thousands of homes and businesses across the county.
“This issue goes wider than the city of Durham. Haggling over land access when we build in a new area slows down broadband rollout and deters investment. It is also an impediment to Government and Ofcom’s ambition for increased fibre rollout and network competition to BT. It’s time rhetoric was put into action to truly break down the barriers to building broadband.”
The issue which is being corrected in the updated ECC is that of ransom rents, a plague to the telecoms industry. As a substantial number of fixed and mobile assets have to be built and maintained on privately owned land, complicated leasing documents are needed. As most of the landowners realise they are in the position of power, telcos are overcharged for access, both to build the asset in the first place, and each time maintenance needs to be carried out. It is an expensive aspect of the business for telcos.
Another worrying trend which was pointed out to us by EE a couple of weeks back is the renegotiation of terms. As most of the leases contain a list of assets on the rented ground, upgrades mean a renegotiation of the terms as introducing new equipment alters the agreement, which gives the landowner the opportunity to charge more as the telco is left with little or no choice. EE is trying to set precedent against this trend with its own lawsuit, but the ECC is supposed to be addressing this unreasonable balance of power.
The main issue is telcos are not currently viewed as a utility and therefore do not have the same rights to access. Due to the critical importance of utilities such as water, gas and electricity, engineers are able to access assets without consent from landowners and do not have to worry about being overcharged in leasing agreements. Telcos want the same access rights as the utilities, but do not want to be regulated as utilities, which is one of the causes of the whole issue. The telcos are not willing to make the necessarily regulatory concessions to ensure the government can protect their interests and offer them more freedoms for the rollout of future-proof infrastructure.
The root cause of this problem is one we are familiar with; rigid and inflexible telcos, stubbornly targeting a protectionist set-up with the government without giving anything in return. Landowners should not be able to hold telcos to ransom, but some concessions will have to be made to ensure progress towards the digital dream can be made.
Liberty Global offloading non-core assets isn’t the only bit of news coming out of the offices today as Virgin Media’s Project Lightning continues to defy its name.
Financials for the quarter were pretty positive overall, revenues for the UK and Ireland grew 5.2% (rebased) to $1.77 billion, while the team boasted of a 25,200 net gain of mobile subscribers. On the more disappointing side of the quarter was Project Lightning.
Over the course of the three months, 111,000 marketable premises were added to the roster, taking the total to 1.2 million since the launch. While this might sound positive, this is the slowest progress for the last four quarters and let’s not forget the aim is to take this number to 4 million by the end of 2019; this isn’t the most rapid rollout we’ve ever seen.
Missing this target is not necessarily the end of the world, it was after all a self-imposed one, but it does perhaps indicate a bit of internal lethargy. Again, not exactly hit the panic button time if it was only measuring itself against the cumbersome BT, but the emergence of Vodafone as a challenger ‘altnet’ in the broadband game perhaps makes it a worrying situation. Progress has been sluggish (putting it politely) when compared to the Vodafone/CityFibre partnership which is tearing up roads left, right and centre to add cities to the growing list of gigacities, targeting 5 million connections over the next eight years.
Of course bringing Vodafone into the conversation is entirely appropriate considering the acquisition announcement which has recently been made. Aside from Liberty Global’s German and Eastern European assets, Virgin Media is also a name which has been whispered in the dark corners of the rumour mill, though this does not look like a bit of business which will be hitting the headlines any time soon.
“Virgin Media is not on the agenda,” said Vodafone CEO Vittorio Coloa during a briefing on the wider acquisition. The UK business is laser-focused on the development of its own convergence objectives, a worrying sign for Virgin Media.
Looking at the figures, Virgin Media currently has just over 5 million subscribers, bringing on an extra 32,000 over the quarter. This is a respectable number, but for this to continue upwards in the long-term, Project Lightening will have to start proving it is worth the paper it is written on.
On the mobile side of things, the message is slightly better. Although the number of prepaid subscribers declined by 44,000, 69,000 were acquired for the more lucrative postpaid subscriptions. The total number of mobile subscriptions now stands at just over 3 million.
Virgin Media isn’t doing badly, but it is hardly setting the world on fire. The broadband business might have been able to position itself as the alternative to Openreach in years gone, but with Vodafone about to turn the lights on in its own gigacities, the team will have to prove it is more than just an alternative for alternatives sake. At the moment it is doing its own ‘Gap Yah’ impression. Momentum is gathering for Vodafone and it looks to be a threat to the sluggish mainstays of the broadband world.