Wednesday, November 03, 2004

More Q3 data points - UK again

NTL today reported Q3 results, and the salient highlights for our purposes are:

  • Triple play penetration is up to 23.1% (from 22.3% in Q2), with triple play homes now standing at 695.8k.
  • Digital CATV penetration was also up, to 68.8% of CATV homes overall, but the base number for comparison has fallen, as analogue homes fell by 20,500. Digital homes grew by only 6,000, a much weaker result than in either Q1 or Q2, and management acknowledged that the sales effort in TV had suffered as a result of the focus on broadband.
  • Direct telephony customers also went down marginally, following fairly strong growth in the previous two quarters.
  • Broadband added 47,100 households (excluding customers on the 60-day free trial). This was the slowest quarter so far this year (Q3 last year was flat on Q2 last year).
  • Churn was up strongly at 1.5% (Q2 1.2%, Q1 1.1%), and management blamed customer relocation outside NTL's footprint, service level degradation due to call center consolidation, and a rise in bad debt related churn. By product area, broadband accounted for only 20% of group churn, and TV/telecom for about 40% each.

It looks as though the individual product areas of NTL are coming under additional pressure. In TV, whether this is from Sky or Freeview should be clearer next Friday when Sky reports. However, NTL CEO Simon Duffy pointed out that the main source of pressure, in his view, was in analogue subscribers moving to Freeview rather than Sky, whose marketing efforts he claimed were not really visible within its footprint. In telephony, we think this result may reflect some stepped-up winback activity at BT, in addition to some outright substitution (though Simon Duffy said that only 6,000 of its broadband customers are using BT's VoIP product announced nearly one year ago). Broadband is growing more slowly (though NTL considers that the conversion rate for free trial subs is around 80%), which may reflect some added pressure from the DSL players. However, it is interesting to look at the ratio of broadband net adds to triple play net adds, a conversion rate if you like. In the six previous quarters, this averaged around 2x. In other words, for every two broadband homes signing up, one home churned off another NTL service. In this quarter, the ratio is below 1.5x (if we exclude non-paying customers), meaning that while NTL may be signing up fewer broadband homes, it is converting a greater proportion to triple play. It will be interesting to see how this number trends in Q4, as the impacts of the free trial subs become apparent. It will also be interesting to see if a more joined-up triple play marketing strategy takes shape, as apparently only 9% of triple play customers go with triple play from day one. For now, it looks as though broadband is the glue.

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