Virgin future speed upgrades

[CraigT1976]

Does anyone know if virgin plan on releasing new speed upgrades in the future faster than 1 gig, or more so upload speed increases?

I want to run a gaming dedicated server but 52mbs wont cut it, I can get 900mb up and down with cityfibre, and it's cheaper. I was wondering if anyone had any inside knowledge of what or if virgin are going to do about this new competition. I was thinking of paying the £40 per month and having the city fibre, and then canceling my virgin when my contracts up, but I didn't want to do this if virgin have something in the pipeline to compete with this.

Thanks

[Andrew-G]

1) VM never announce commercial plans in advance

2) DOCSIS as implemented by VM is hard-coded to have limited upstream capacity, and there's little they can do about it.

3) VM are aware that upload is a problem, and some modest improvement in upload is feasible and perhaps likely to say 110 Mbps for Gig 1 customers, possibly with new 1.5 or 2 Gbps download tiers.  The recent move to use five upstream channels suggests there are plans afoot, but no speculation on timing, and is 110 up adequate for what you have in mind?

4) If you want fully symmetrical, or even better balanced up/down, go with Cityfibre.  

5) VM's long term solution is to replace the coax network and DOCSIS with XGS-PON and whilst that's a publicly stated intention, we're talking about that being several years away.  With a worsening economic climate and rising interest rates VM may even choose to slow the progress on that, because investment like that consumes a lot of cash for no immediate commercial return, and that's money VM have to borrow.

[Adduxi]

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@Andrew-G wrote:

<snip>  5) VM's long term solution is to replace the coax network and DOCSIS with XGS-PON <snip>

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Andrew, interestingly enough these cabinets are popping beside the VM (older NTL) cabinets all around my area.  I did "bend the ear" of a VM guy who was working in the area, and he told me they are for the new fibre infrastructure and that he would be glad to see the old co-ax de-commissioned.   🙂

 

[Roger_Gooner]

VM is perfectly capable of increasing the 52Mbps upload speed, but why spend the money for little return. Yes there is always a vocal minority calling for higher upload speeds but they don't make a good business case.

VM has a 6-year plan to get all areas ready for XGS-PON, so that's where the investment is going. Note: when that happens you are not automatically going to get your coax replaced by fibre in the near future.

[CraigT1976]

Oh well, looks like cityfibre for a bit, whilst I await to see what VM does in the future. 

[Andrew-G]

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@Adduxi wrote:

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@Andrew-G wrote:

<snip>  5) VM's long term solution is to replace the coax network and DOCSIS with XGS-PON <snip>

---

Andrew, interestingly enough these cabinets are popping beside the VM (older NTL) cabinets all around my area.  I did "bend the ear" of a VM guy who was working in the area, and he told me they are for the new fibre infrastructure and that he would be glad to see the old co-ax de-commissioned.   🙂

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Interesting, and there's related comments in this ISP Review article.  I must say that if I had the option of a VM XGS-PON connection or Openreach FTTP, I'd still take an Openreach ISP because although VM's technology is obsolete and needs upgrading, the real problem Virgin Media have is not their technology, but their culture and the customer experience they offer.  Fixing those would take about the same amount of time as overbuilding the coax network with fibre, but VM have not yet recognised there's a problem, and thus see no need for a solution.

[Roger_Gooner]

In the medium term VM is migrating from HFC and RFoG to XGS-PON whilst BT will upgrade its FTTP areas from 2.5Gbps GPON to 10Gbps XGS-PON. Note: only a minority of BT's users have fibre although Openreach plans to reach 25 million premises all over the UK by end of December 2026. However the comparison of VM and BT from a broadband perspective is too narrow as they are both quad play operators with mobile provided by O2 and EE respectively. Although linear TV is in decline it's crucial in getting market share, so both companies will continue to be Pay TV providers for a very long time. Their offerings are not identical, although there is much overlap of course, and prices do differ. And speaking of Pay TV providers, the elephant in the room is Sky who also offer broadband via Openreach (but only up to 500Mbps), landline and mobile via O2.

In summary, I think all of this looks good for the customer.

[Andrew-G]

A very, very good summary there, Mr Gooner. 

VM are certainly betting on quad play as a substitute for their speed primacy or improving customer service, but I'm not sure VM's physical broadband network will be financially viable in the medium to long term.  The problem for VM is that quad play can be done without owning a physical network, but VM do own one and in the medium term still need to.  The underlying economics of VM's network have never been good, and are undoubtedly loss making if properly accounted.  VM have been investing for years in network extension, yet connected customer numbers remains stubbornly fixed, so in practical terms they've been using their capital investment to buy turnover to replace customers leaving the established network footprint.  A critical outcome of that is that the customer density (or customers per network kilometre) declines, and costs per customer go up.  With OR FTTP and altnets gathering speed, that accelerates the loss of customers to competition.  Meanwhile VM have the uncompleted O2 merger to finish, are already thinking who to buy next, need to continue the 5G build out for O2 (and prepare for further tech change in mobile), replace VM coax, and then replace DOCSIS, need to manage their staggering eighteen billion of debit in a higher interest and inflationary world, as you point out there's structural shifts in the TV market to adapt to. 

Sorting out their diabolical customer service is still seen by management as something they don't need to do, and that they don't have the skill or management capacity to do.  As I see it, VM's poor customer service is a major contributor to the churn that means they need to extend the network to keep customer numbers stagnant, thus also requiring VM's continuous and vastly expensive marketing efforts which further consume cash.  The whole VMO2 business is kept afloat by parent company commitment, debt, and cash generated by O2.  That's not a stable business model.  

[Roger_Gooner]

I don't agree that "The underlying economics of VM's network have never been good, and are undoubtedly loss making if properly accounted." VM's debt is disclosed in all the annual accounts and a loss or profit for any financial year was audited by KPMG. It's perfect fine to take on debt to resolve infrastructure issues, and it's worth remembering that when VM came into existence in February 2007 the network was in poor shape, consisting of several hundred rollouts by many operators who had varying standards and budgets. As an example I recall an area not far from where I used to live where the Telewest network provided TV but not broadband. So, VM had to spend heavily to upgrade the network and it wasn't until December 2016 that virtually everyone on the network was able to get all the broadband, TV and fixed line telephony services on offer. VM then embarked on a 2-year project to upgrade the entire network to DOCSIS 3.1 which was finished on time in December 2021. And remember that this was all done in a market which is both highly competitve and regulated.

A major change came in June 2021 when Virgin Media O2 was formed as a 50:50 joint venture between Liberty Global and Telefónica. The results for the nine months ended 30 September 2022 show a net profit to Transaction Adjusted EBITDA of £2.89bn (an increase of 5.1% over the previous period) and third-party debt, lease obligations and cash and cash equivalents of £20.19bn (a 5.8% increase). So, there's a lot of debt but the shareholders are big companies and VMO2 is profitable.

Another big change, in addition to migrating the entire VM network from DOCSIS 3.1 to XGS-PON, is that Liberty Global and Telefónica have partnered with InfraVia Capital Partners in a 50:50 joint venture to add five million premises to VM's current 16 million by 2026 with the option to increase to seven million. VM will be the anchor tenant and major ISPs will be offered wholesale contracts. I expect that the existing network will also be offered on a wholesale basis, but it will take many years to get fibre into a substantial proportion of premises. So, in short Openreach will have a big competitor for the first time, and Openreach themselves are also investing heavily in fibre, planning to reach 26 million premises by December 2026.

In summary I think that a huge amount of investment is being done and that in the end over 80% of premises will be covered by Openreach and/or VMO2. By then the traditional distinction of a telco and a cableco will be gone as they will both be delivering IPTV and telephony over their XGS-PON platforms. So, for us punters there's a lot to look forward to.

[Andrew-G]

I don't agree that "The underlying economics of VM's network have never been good, and are undoubtedly loss making if properly accounted." 

Please read this as somewhat tongue-in-cheek, but the facts are indeed the facts: 

Your faith in accounting rules is touching but misplaced.  I've worked at a company that in six months went from being the largest company listed on AIM, looking at a transition to LSE and probable FTSE250 status to being bankrupt.  The most recent accounts before it went bust all got signed off without problem, and we were a going concern.  We started to do some due diligence for a planned corporate transaction, and when we opened the corporate cupboards, it was like that Paths of the Dead scene in Lord of the Rings, where innumerable skeletons fall out to bury those who disturbed them.  Accounts are just like statistics - a competent operator can twist them and select the evidence to show whatever they want, but the bones of truth remain for those who go looking.

Now, if you look at Virgin Media Limited's most recent accounts which are for 2021.  Go to the P&L on p41.  Shows £722m net profit.  Woohoo! You're right, they ARE profitable, you're right and I'm wrong.  But hold on a moment, Sir!  They didn't pay any corporation tax, and moreover a third of the net profit is down to a corporation tax credit of £273m.  That's legit, but it's not money earned from operations nor is it long term sustainable, so let's take tax out of the equation, and we're down to the £424m PBT as true and wholesome (probably).  Next, look at the finance income and costs - those net to a positive contribution to profit of around £49m.  Now, there's odd, because from company data it is known that VM's UK operations had about £14 billion of debt at the end of 2021 (that's £14bn in respect of Virgin Media as part of the VMO2 group's total £18bn, I'll let you trace the specifics by which I've arrived at £14bn, but it's all public domain), and the average debt borrowing costs were 4.5% for the year.  So, 4.5% of £14bn is £630 million - that's being paid by somebody, somewhere, but it is not reflected in VM Ltd's accounts, although in VMO2's accounts there's some big swings and roundabouts on financing costs.  Do a search on Companies House for Virgin Media and see if you can find it in the rat's nest of around 40-50 subsidiaries and SPVs (and that's only the UK ones, and the ones with virgin media in the name).  There's another 20 odd with Liberty Global in the name, plus more that will be group companies but with names like 123finco or the like, and then you've got Liberty Global offshore subsidiaries which may have no publicly visible accounts (they aren't called the British Virgin Islands for nothing).  VM's owner Liberty Global have always been famous for their opaque accounting and impenetrably complex debt structures, this is neither a secret, nor illegal, but it is complex and non-transparent.  If you look at the LG earnings releases, they're all made up of selective data that isn't to GAAP, carefully steering away from presentation of GAAP P&L results.  Why might that be?

So, bringing this brief masterclass on cutting through accounting bull-droppings to a close, the calculator is passed over to you.  Take VM Ltd's £424m pre-tax profit, and subtract the £630m of interest, what are you left with?  You might also want to rub out the net £49m claimed as net financing income whilst doing this.  And with interest rates rising fast, and VM debt increasing by around one billion quid a year in relation to network upgrades, what would a reasonable observer conclude about the future?  With parent company and investor backing that doesn't mean they will go bust, they can easily pass the going concern requirement, and the O2 merger provides a cash cow to support the VM business.  However, if the part of the business that was formally the entirety of Virgin Media in the UK is not structurally unprofitable, why have Liberty Global not paid a brass farthing in dividends in the past ten years, and would you want your pension invested in this?

You could pick at some of my numbers here, but structurally you cannot get away from VM's massive debt, which is about the same as the government debt of a small country (eg Luxembourg, Latvia, Bulgaria or El Salvador, amongst others), and the fact that they're not earning the money to cover the costs of that debt, make a real net profit, pay tax on profit, and pay a dividend.....