With his experience of record-breaking hot-air balloon jaunts, Sir Richard Branson is no stranger to entering unknown territory. But some analysts wonder whether the proposed tie-up between his Virgin Mobile brand and cable operator NTL is a foray too far.
NTL plans to buy Virgin Mobile to create the UK’s first “quadruple-play” proposition. The new service will offer a combined initial customer base of 9 million people access to broadband television and the internet, as well as fixed and mobile phone services. At first glance, it appears the new entity, likely to be branded Virgin, could pose a great threat to BSkyB’s dominance of the emerging media markets.
But given NTL’s poor customer satisfaction record, some observers worry that Branson is taking a great risk by pinning his brand on the rickety infrastructure of the cable operator. Some claim the deal is the most exciting cable industry development in years, while others argue the Virgin brand could be irreparably damaged if it is plastered on to a poorly fitting partner.
NTL hopes that if it jumps on the Virgin “brandwagon”, some of Branson’s magic will rub off on its own beleaguered image, while Branson is keen to establish a foothold in the TV sector. But analysts point out that NTL is still sorting out the finer details of its recently announced merger with rival Telewest. “Hopefully this is not going to look like Time Warner and AOL on a smaller scale,” warns SG Securities media analyst Anthony de Larrinaga.
He adds that offering quadruple-play services does not give NTL a key competitive advantage, with few immediate tangible benefits. “There is a law of diminishing returns if you keep on buying every possible platform,” he cautions. “Virgin Mobile has a relatively small market share. Its customers are mostly young and are not household decision makers.”
In the short term, it seems, this is a play for credibility through branding, rather than a scramble for young mobile phone users who may shun the cross-selling of cable products. The deal offers NTL a clean slate for the service it provides under its existing consumer brand name, which experts say is likely to disappear as it evokes images of poor service.
Interbrand chief executive Jez Frampton says: “This has got to be Virgin on the inside before it can be on the outside, otherwise expectations will backfire. Neither NTL nor Telewest has produced anything like as well-formed a brand.”
Virgin risks harming the equity of a brand that adorns products and services including music shops, radio stations, air travel and, less successfully, trains. Branson was initially derided for Virgin Trains’ performance, which got off to a bad start and drew complaints about poor customer service and late trains. However, a &£1bn investment three years ago is starting to pay dividends in a notoriously tough consumer market, and the train operator was small enough in terms of the Virgin Group not to badly hurt the other brands.
A Virgin-branded cable operation would be the group’s biggest UK service, although Virgin Group would own just 14 per cent of the company. A Virgin insider says Branson would need to be afforded control of the brand and marketing for the venture to stand a chance of success: “It has to be Virgin from the product up: it is not simply slapping a logo on and hoping that the name alone will carry it through. That is not what Virgin does.”