Virgin Mobile Hits 5M User Mark; Churn Rises

LONDON (Dow Jones)-- U.K. mobile telecommunications company Virgin Mobile Holdings PLC (VMOB.LN) Tuesday said it surpassed the 5 million customer milestone over the Christmas period, adding further spice to a strong reporting period for U.K. wireless operators.

Virgin Mobile added 417,000 new users in the three months to Dec. 31, expanding its customer base to 5 million, up 37% from 3.7 million at the end of 2003. Still, the churn rate - the percentage of customers quitting the company - increased in the period, with analysts attributing this to fierce competition over the Christmas period.

The company said it has enjoyed a strong start to 2005, with January subscriber additions 25% ahead of the same period a year earlier.It said it is on track to deliver profits in line with analysts' expectations.

"The company continues to expand in a very competitive market...The efficiencies in our business operations have helped to improve operating profit margins, and deliver profitable growth in line with our ambition," Chief Executive Tom Alexander said in a statement.

It was Virgin Mobile's strongest ever quarter for net additions. This confirmed that Christmas was a bonanza for mobile operators, with rivals mmO2 PLC (OOM) and Vodafone Group PLC (VOD) both reporting strong subscriber momentum.

However it is little surprise that Virgin Mobile had a solid festive season as it competes in the prepay market which is typically strong over Christmas.

Virgin Mobile targets its services at the youth market. It is able to offer relatively cheap text and voice packages to consumers as it doesn't own a mobile network, instead leasing capacity from T-Mobile International AG's (TMO.YY) U.K. network to offer branded services to consumers.

ABN Amro said the results were positive with strong subscriber growth and a strong outlook. ABN said net additions of around 406,000 had been expected and put its rating and price target under review on the back of the results.

ABN said the subscriber growth means T-Mobile - a unit of Deutsche Telekom AG (DT) - only added 102,000 users in the U.K. T-Mobile includes Virgin Mobile subscribers in its results.

By 0843 GMTshares in Virgin Mobile were down 7.6% to 245 pence. One analyst, who requested anonymity, said the results were a mixed bag with churn and inactivity levels increasing. He said that with institutional shareholders and Virgin Group (VGN.YY) holding over 90% of shares, illiquidity is also an issue.

The churn rates increased to 16% from 14% in the second quarter on the back of increased competition over the Christmas period.

Virgin made progress on the sales front, reporting service revenue growth of 9.4%. It said excluding the impact of regulatory cuts to mobile termination rates - the tariff a mobile operator charges to connect a call from a rival network operator - service revenue rose 20%.

Data services such as text messaging accounted for 30% of service revenue, an increase from 29% in the second quarter.

It said average revenue per user, or ARPU, for the year to Dec. 31 was GBP132, down from GBP137 in the second quarter on the termination rate cut, while subscriber acquisition costs were GBP28, up from GBP24 in the second quarter.

The analyst said the ARPU decline was better than expected but said lower activity levels suggest a level of dual-SIM card ownership.

Company Web site: http://www.virginmobile.com

-By Nic Fildes, Dow Jones Newswires; 44-20-78429264; nicolas.fildes@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 1st February 2005