UPC in three-front battle for market share

Rebranded Chorus/NTL will focus on integrating TV, phone and broadband, writes Ciarán Hancock

With 1.1 million homes in the State having some form of pay television, we are clearly a nation of couch potatoes. We also love to talk and text, spending billions of euro each year on mobile and landline services. And we're becoming increasingly hooked on surfing the internet.

This helps to explain why Liberty Global, a Colorado-based media group, is willing to sink about €1 billion in acquiring and upgrading NTL and Chorus, the cable TV players, so that they can offer a triple play of television, voice and broadband here.

"We're happy that we acquired at the right price," says Shane O'Neill, chief strategy officer for Liberty Global and the man who masterminded its entry into the Irish market. "If we hit our targets, then we'll do extremely well."

NTL and Chorus will soon be rebranded as UPC Ireland and, with the benefit of a €400 million upgrade to its cable network, O'Neill is confident that this entity can capture a 50 per cent share of the broadband market and up to 30 per cent of the voice market within three years.

"It really hits us between the eyes as to how under-served broadband is and how uncompetitive voice is," O'Neill says.

Figures published yesterday by Liberty Global show that it had 55,300 broadband subscribers by the end of December. This places it second only to Eircom, which earlier this week claimed 360,000 broadband users.

UPC also has 400 voice customers, a piffling number when you consider that there are about 1.6 million homes. But the company has been working hard to upgrade its network so that more homes can receive it.

By the end of 2006, 91,800 homes were able to get voice telephony from UPC. At the end of this month, the company plans to begin a heavyweight marketing campaign to promote its cut-price phone service to customers in Dublin, Galway and Waterford.

The phone service will cost just €10 a month in rental when bundled with digital TV and broadband. Eircom's line rental fee by comparison is €24.18 a month. The entire triple play bundle will cost €55.98, making it a highly competitive package for consumers.

Not that it has the field all to itself. BSkyB, the satellite broadcaster controlled by Rupert Murdoch, has been furiously signing up customers over the past 12 months, while smaller players like Magnet are cherrypicking new urban areas to offer TV and telephony services.

Sky earns revenues of about €3 billion in the Irish market. About 90 per cent of this is subscriber revenue, with the balance coming from advertising.

Sky has 465,000 subscribers, placing it within touching distance of UPC. It hooked up 72,000 additional homes in 2006, a staggering pace of growth that must be the envy of UPC.

Technology has been the key driver of growth for Sky. The launch of the Sky+ set-top box, which acts as a personal video recorder, gave it a significant jump on NTL and Chorus, which have long suffered from underinvestment.

There are about 100,000 Sky+ boxes in Ireland. Sky last year introduced high-definition (HD) TV into Ireland, a broadcast format that offers sharper picture quality. In spite of the hefty €449 cost for a HD box, the satellite broadcaster is believed to have already sold about 10,000 units here.

Sky also has a limited video-on-demand service and customers can now record on their Sky+ boxes from their mobiles or via the internet if they choose.

Sky's obvious blindspot in Ireland, however, is broadband. In 2005, it paid €300 million to acquire Easynet in the UK and has entered the broadband market there with some success. Subscribers to its premium movie or sport packages get a basic broadband offering for free.

Sky has said it would like to offer broadband to its Irish customers but difficulties with local loop unbundling and the cost of taking a wholesale product from Eircom have so far proved prohibitive.

The company was rumoured to have considered acquiring Smart Telecom, which almost went bust last year. It is also thought to have looked at the wireless market.

UPC, meanwhile, is fighting back on the technology front. O'Neill said the upgrade would enable it to launch a personal video recorder (PVR) product by the end of this year. HD and video-on-demand services will follow in 2008, O'Neill says.

"We'll then have a very competitive offering," says O'Neill.

It is a point acknowledged by Bill Kinlay, chief executive of Mindshare, which buys about €110 million of advertising from media companies for its clients each year.

"Once UPC is in a position to be able to offer the improved technology to large number of customers, I think it will do very well," he says. "But to my mind, there's still a lot of work to be done on upgrading the network."

Sky Ireland deputy managing director Mark Deering says he is confident the satellite company will continue to lead the way on technology. "Sky has invested hundreds of millions of euro in rolling out the most pioneering digital television platform in Europe and welcomes cable's belated commitment to driving digital TV in the Irish market," he says.

Liberty Global said yesterday that its Irish subsidiaries have a combined 595,200 TV customers, be they analogue, digital or MMDS.

This makes it the market leader, but while Sky was adding new customers as a rate of almost 1,500 a week last year, UPC gained just 18,800 additional subscribers in 2006. "We're holding our own in terms of new customers," says O'Neill.

The trick for UPC is to switch its analogue customers to its digital offering, which is naturally more expensive. It added 57,000 new digital customers last year, most of them switching from analogue.

UPC also has to counter the constant bad press it receives over its customer service levels. A recent attempt to introduce a late payment fee and a charge for not using direct debit backfired when Joe Duffy's Liveline show gave NTL customers a platform to air their grievances.

"Hands up on that one," says O'Neill. "We're guilty as charged. There needs to be a significant improvement in that area. But you've got to remember that there had been no investment in this business for five years before we took it over."

Liberty Global is certainly putting its money where its mouth is by committing €1 billion to the market. Will it ever see a return on this investment?

O'Neill hints at UPC being profitable already at an operational level. The plan is to achieve double-digit revenue growth, but the capital expenditure costs will continue to weigh it down. "By any standard this is a very significant investment for us but we believe we'll do extremely well here over time."