Virgin Media 2011 Annual Report Download - page 44

our customers to use multiple services such as television, fixed and mobile telephone and broadband at a lower
price than each stand-alone product on a combined basis. Factors particularly affecting our Consumer segment
include average revenue per user, or ARPU, churn, competition, seasonality and distribution.
Cable ARPU. Cable ARPU is a measure we use to evaluate how effectively we are realizing potential
revenue from our residential cable customers on our network. We believe that our “triple-play” cable offering of
television, broadband and fixed line telephone services is attractive to our existing cable customer base and
generally allows us to increase our cable ARPU by facilitating the sale of multiple services to each customer.
Cable ARPU excludes any revenue from our mobile and non-cable customers.
Mobile ARPU. Mobile ARPU is a measure we use to evaluate how effectively we are realizing revenue
from our mobile customers. The mix of prepay and contract customers and level of usage have a material impact
on Mobile ARPU. The mix of our customer base is changing as we focus on acquiring higher lifetime value
contract customers, rather than lower lifetime value prepay customers, particularly through cross-selling to our
cable customer base. Consequently, the number of prepay customers is expected to continue to decline in 2012,
along with prepay usage.
Churn. Churn is the proportion of customers who stop subscribing to any of our services. An increase in our
churn can lead to increased costs and reduced revenue. We continue to focus on improving our customer service and
enhancing and expanding our service offerings to existing customers in order to manage our churn rates. Our ability
to reduce our churn rates beyond a base level is limited by factors such as competition, the economy and, in respect
of our cable business, customers moving outside our network service area, in particular during the summer season.
Managing our churn rates is a significant component of our business plan. Our churn rates may increase if our
customer service is seen as unsatisfactory, if we are unable to deliver a service without interruption, if we fail to
match offerings by our competitors, if we increase our prices, if there is an improvement in the U.K. housing market
or if there is a prolonged economic downturn.
Seasonality. Some of our Consumer revenue streams are subject to seasonal factors. For example, telephone
usage revenue by residential customers tends to be slightly lower during summer holiday months. In the fourth
quarter of each year, our mobile customer acquisition and retention costs typically increase due to the Christmas
holiday period. Our Mobile ARPU generally decreases in the first quarter of each year due to the fewer number
of days in February and lower usage after the Christmas holiday period. Our churn rates include persons who
disconnect their service because of moves, resulting in a seasonal increase in our churn rates during the summer
months when higher levels of U.K. house moves occur and students leave their accommodation between
academic years. In addition, our revenue and cost of sales tend to be lower in the first quarter of any year as
compared to the immediately preceding fourth quarter of the prior year. Historically, there has been lower
telephony usage (including mobile, as noted above) in the first quarter and less spending on a variety of products
and services in a first quarter than in a fourth quarter.
Distribution. We use certain third parties to distribute our mobile products and services. If any of these
distribution partners were to cease to act as distributors for our products and services, or the commissions or
other costs charged by the third parties were to increase, our ability to gain new mobile customers or retain
existing customers may be adversely affected. We continue to increase the proportion of our products distributed
through our own channels including our retail outlets.
Business Segment
Factors particularly affecting our Business segment include pricing, operational effectiveness and changes
in government spending.
Pricing. Competition in the U.K. business telecommunications market continues to be based on value for
money, the key components of which are quality, reliability and price. Certain of BT’s product pricing is
43