Global Insight Perspective | |
Significance | NTL has announced plans to cut 6,000 jobs as part of its integration with its recently acquired Telewest |
Implications | Swift integration and stringent cost cutting would position NTL as a veritable competitor in the ensuing U.K. broadband battles. A diversified portfolio and imminent rebranding as Virgin make NTL a stalwart for the industry. |
Outlook | Having bought off its only cable rival and secured its long-term cable business, NTL will aggressively pursue other business lines. The company will capitalise on its new affiliations with Virgin to renew its acceptability to the population and at the same time explore ways to improve customer relations. |
U.K. cable operator NTL has reported a loss of £119.9 million (US$224.24 million) for its first-quarter 2006 operations, attributing this to the costs of servicing the debt it incurred to acquire Telewest. In contrast, the company made a £455.8-million profit for the first quarter of 2005. Revenue was up 29% to £611.4 million in the latest three-month period, from £497.8 million a year earlier. Commenting on the results, chief executive Steve Burch insisted that the integration of NTL and Telewest was progressing well. 'Today, we are announcing our plans to accelerate our integration programme to achieve a run rate of at least £250 million of annualised cost synergies by the end of 2007,' he said.
Key to the cost savings is a proposed cut of 6,000 jobs - about a third of NTL's U.K. staff strength - by end-2007. 'Part of this [integration] process will involve outsourcing a significant number of jobs, where employment would be transferred to an external organisation, as well as actual job reductions,' Burch adds. NTL hopes to achieve 80% of job reductions within the next 12 months with around 1,500 of the outsourced jobs going to IBM from July 2006. The company plans to outsource around 3,000 jobs in total, reducing jobs from call centres, other customer-facing positions, and importantly in roles where there is duplication such as marketing. Last October, NTL acquired cable TV rival Telewest for US$5.99 billion and followed this up with a bid for Virgin Mobile in December (see United Kingdom: 5 December 2005: Virgin Mobile Confirms NTL Approach and 4 October 2005: NTL to Acquire Telewest for US$5.99 bil.).
Outlook and Implications
- Broadband Battle Hots Up: Following last month’s free broadband offer from Carphone Warehouse, the U.K. broadband sector is preparing for a major upheaval. A resurgent NTL, dressed up as Virgin and free from competition in its cable TV business, is a formidable force. During the quarter, the company added 191,400 broadband customers to take its total broadband customer base at the end of the quarter to 2.822 million, second only to BT in market share. Despite Bulldog - Cable and Wireless’s (C&W) broadband unit - launching a 16 Mbps, ADSL2+ broadband package, NTL's 10-Mbps offer remains the highest speed available to a majority of the population. The company said that its broadband penetration stands at 24% of its marketable homes, and was bullish about the outlook for growth (see United Kingdom: 2 May 2006: Bulldog Launches 16 Mbps Broadband Service and 11 April 2006: Carphone Warehouse Unsettles Market with 'Free' Broadband Service) .
- Offering the Lot: NTL remains the only company in the country offering a realistic triple-play offer, and looks set to become the first and only quadruple-play provider following its acquisition of Virgin Mobile. Exploiting the synergies from the acquisition of Virgin Mobile and the subsequent re-branding as Virgin is bound to have significant effect on NTL's marketability. However, while a Virgin name will attract immense goodwill, it would not cover up for dismal customer service. NTL is also active in the telephony business, adding 8,100 such customers in the quarter. Its total telephone customer base is 4.27 million. For its cable TV business, the company surprisingly did not get a slice of the rights to broadcast English Premiership matches for the three years starting from 2007; BSkyB and Setanta shared these rights. However, NTL remains the only competitor to BSkyB in the U.K. pay TV market. At the end of the quarter, it had 3.32 million subscribers (see United Kingdom: 16 January 2006: NTL's Passion for the Virgin Brand .
- Job Cuts Plague U.K. Telecoms Sector: NTL joins Orange U.K. and C&W as telecoms players that have announced plans to cut jobs in the country. NTL's job cuts were both expected and expedient, considering that the imminent outcome of merging with Telewest was to streamline the business and draw synergies for investors. The company has also avoided a major political backlash by emphasising it is to outsource to IBM rather than suggesting it is shipping the jobs abroad. For Orange U.K. and C&W, job cuts represent a strategic decision aimed at reducing operating costs. Although BT has not hinted at any cuts, it is embroiled in a controversy over its pension liabilities with revelations emanating about the government underwriting it to an amount totalling billions of pounds (see United Kingdom: 5 May 2006: Orange Integrates Wanadoo, Axes 2,000 Jobs and 28 February 2006: Cable & Wireless Plans to Cut 3,000 Jobs by 2010).