In July 2015, cable and broadband provider UPC Ireland purchased TV3 for €87 million. Rebranding to Virgin Media Ireland (VMI) less than two months later, the company was poised to launch a major expansion into the Irish market, surfing on the advent of streaming platforms and mobile devices (the rebranding of the television station would come in 2018).
Now, however, VMI’s parent company Liberty Global has reportedly put the network provider on the block. Given the choice between doubling down in Ireland or getting out, it has chosen the exit door.
The reason is Ireland’s uber-saturated broadband and telecom industry, which is on course to see a pivotal restructuring in the coming years with the market’s big fish looking to gobble up the smaller players.
Analysts estimate that the business could fetch up to €1.5 billion. But any buyer will face competition from industry giants like Eir and Vodafone, both mounting significant leads in broadband and telecom users.
Eir and Vodafone are also making a push to fill out the island with 5G and gigabit fibre broadband coverage, shrinking the market for smaller providers.
The deal leaves VMI’s 123,700 mobile customers and 380,000 broadband customers wondering what the future of their service will look like, as well as the almost 435,000 Irish people who subscribe to Virgin TV.
With Virgin’s ownership hanging in the balance of a shifting industry, who might buy the company, and what would a sale mean for the future of Ireland’s broadband and telecom market?
As Virgin’s primary competitor, Eir will be keeping a close eye on the deal.
“Obviously, we’ll watch that to see what happens carefully to see how it plays out,” said Susan Brady, Eir’s managing director of consumer and small business.
“Will it be a buyer that continues to run it as is, or will they look to change, we obviously don’t know, but we’re ready to adapt to whatever it may be.”
Eir is one of Ireland’s largest telecom providers, with more than 1 million direct mobile customers. Hundreds of thousands more benefit from Eir’s network through its Open Eir system, which allows smaller network providers to pay Eir to re-package and re-sell its coverage.
This process, called piggybacking, is central to Ireland’s telecom market and a key player in the effect the Virgin sale will have on the industry, according to Brady.
“It creates a really competitive landscape for business, but it’s fantastic for consumers,” she said. “We have smaller broadband providers going to rural regions using our platform, and that gathers momentum for coverage through the country, but those players are under threat.”
Brady explained that the telecom market in Ireland is becoming increasingly dominated by larger players. With the emergence of 5G and gigabit fibre broadband, larger companies are now looking to expand their coverage into more rural and sparsely populated areas by themselves, where smaller providers previously thrived.
Virgin Media’s presence in Irish mobile has become relatively niche, only sporting just over 120,000 customers through a small piggyback deal that sees it sharing coverage with Three.
Compared to its competitors, Vodafone with 2.4 million customers and Eir with 1.1 million, Virgin Media’s mobile presence was dwindling.
Virgin’s urban footprint is stronger, providing broadband to 48 per cent of the population in Dublin, Cork, and Limerick, which trumps Eir’s 34 per cent city coverage.
Even this advantage will likely diminish soon, though, according to credit rating agency Fitch.
Several other network providers, Eir specifically, are making an aggressive push towards better infrastructure and thus better coverage in Ireland’s cities, Fitch says. The moves will look to erase the one area of the market where Virgin has a sizable lead.
The company has just over 380,000 broadband subscribers in Ireland, seeing a slight increase during the pandemic. It beats Vodafone’s 300,000 customers but is still dwarfed by Eir’s 810,000 subscribers.
Virgin’s also-ran status among Irish mobile and broadband providers made it expendable and in danger of being squeezed out like several other players in the sector might be in the coming years, according to Brady.
“Two years ago, for what people would have needed, lower speeds would be effective,” she said. “On my own team and our own business, we were thinking ‘how are we going to create a market where people need 5G and gigabit fibre broadband’, but the pandemic has changed things, it has leapfrogged all of that thinking.”
With the emergence of work from home and households throughout the country needing to occupy several screens worth of content at once across an entire family, high-speed, high-performance broadband and mobile service quickly evolved from a luxury to a necessity.
“We’ve had customers who some time ago decided they didn’t want to pay for faster speeds, and those people are coming back saying we need this in my home or business. There’s no question, people want it now more than ever,” Brady said.
Eir’s average mobile network traffic doubled in 2020.
Virgin’s platform also saw a similar bump in traffic, although from a much lower user base. The company saw almost 20,000 new mobile customers join in 2020, pushing its subscribership past the 120,000 threshold, but still a far cry from the million-user base sported by heavyweights Vodafone and Eir. It also took on 4,000 new broadband subscribers in 2020.
“People keep telling me that it’s over, that I’m going out of business, I still have 5,000 happy customers.”Patrick Cotter, CEO, Rural Wifi
Virgin’s new users pushed its revenue up 3 per cent in 2021, aided as well by its nearly doubled data usage from existing customers, and a recovery in advertising revenue.
The industry’s heavy hitters are gearing up to launch a massive infrastructure overhaul to compensate for the increased demand, and despite its modest gains in 2020, smaller players like Virgin might not be able to keep up.
“We’ve launched a massive investment programme, a billion euro, so that our customers have the latest future proof technology,” Eir’s Brady said. “We’re investing across all sectors, rolling fibre out into the ground, mobile network expansion, upgrading our 4G, rolling out 5G, our goal is to have an additional 1.4 million homes and businesses connected.”
Credit agency Fitch supported Brady’s point, saying that Virgin’s smaller footprint in the mobile market left it vulnerable to “a growing national fixed-mobile convergence trend”, adding that the company could see margins drop as competitors ramp up coverage even more.
That additional 1.4 million connections proposed by Eir is encroaching on other provider’s territory, too. Rural Wifi’s CEO Patrick Cotter is not losing sleep over the issue, though, and doesn’t think other small providers should either.
“People keep telling me that it’s over, that I’m going out of business, I still have 5,000 happy customers,” he said. “I don’t think we’re going to see any change in the next ten years.”
Cotter founded Rural Wifi in 2007, intending to bring broadband to rural areas.
“I lived in County Meath in a village where we couldn’t get broadband, so I came up with a solution, and I saw that there was a market for it,” he said.
Rural Wifi’s business model is built on rolling out broadband to homes in isolated areas on a case by case system, instead of providing blanket coverage to populated areas akin to the larger providers’ business models.
“The larger providers don’t really do much that requires them to go out and solve a problem,” he said. “They won’t go the extra mile, they are satisfied to drop down in places where they get a lot of people. Most times out of ten, we have to tell our customers, it might be a journey to go out and get you set up, but we’ll do it.”
Cotter added, though, that Virgin Media still might struggle due to its non-independent status in the telecom and broadband market.
“They are limited with what they can do because they piggyback,” Cotter said. “They don’t have the same expansion capabilities and are relying on another network, so it might be difficult to really adapt.”
Leaders in cable
Virgin still has an ace up its sleeve, though. The company has been a leader in Ireland’s cable television market.
It is the nation’s second-largest pay TV provider with 435,000 fixed-line customers, behind industry leader Sky with 700,000 but dwarfing other competitors like Eir, which serves a meagre 81,000.
“The TV packages are the best thing that Virgin has going for it. If it’s going to sell and sell to someone who will keep operating it as is, that will be the selling point,” an industry source said.
Virgin is Ireland’s only commercial TV broadcaster, and this is showing no signs of fading out of the spotlight like its mobile and broadband divisions.
The company has just secured the rights to broadcast UEFA Champions League games in Ireland for the next three years, a deal that likely boosts the value of the sale. It is also working with RTÉ and Six Nations Rugby for the rights to broadcast the men’s and women’s Six Nations games.
Virgin added almost 30,000 new TV subscribers in 2020, but buying Virgin Media Ireland for its television presence does not come without risk.
The pandemic brought Virgin TV a wave of new customers, but it also brought with it a wave of consumers electing to subscribe to streaming platforms like Netflix and Amazon, which have been eroding pay TV providers’ market since the early 2010s.
In a report published by RTÉ about the shifting tide of the Irish television landscape, the broadcaster described how internet-reliant streaming platforms have set the standard for entertainment, and traditional providers are playing catch up.
“These services allow consumers to access music, film and television services over the Internet without requiring a traditional cable or satellite subscription,” the report details.
These services have forced pay TV providers to adapt by offering cheaper, thinner bundles of content that do not generate as much revenue as the all-encompassing packages of old.
“More consumers are buying ‘skinny bundles’, slimmed-down cheaper subscriptions to TV channels or content packages being offered by cable, satellite and OTT providers,” the report said. “All of these new distribution models are challenging long-standing business models.”
This trend might spell bad news for a potential buyer of Virgin Media Ireland.
“The television market is trending away from cable in general, so buying into a company like Virgin, which is mainly a television buy – it is something to consider,” an industry source said.
As for potential buyers, there are plenty of suitors.
Liberty Global has appointed LionTree, a telecoms investment bank, to oversee the sale process, where Virgin’s former competitors now stand as potential buyers.
Liberty Global first reached out to these competitors, Vodafone, Eir, and Three, looking to buy one of them, but was turned down, and instead decided to cut ties with the Irish telecom and broadband market entirely.
For Vodafone, absorbing Virgin would allow it to shift the tide in the industry.
The two providers combined would relaunch Vodafone into the forefront of Irish broadband, amassing over 680,000 users and challenging Eir’s current drastic lead in the sector with 810,000 customers.
The extra bump in mobile users might also interest the company, with Vodafone trying to catch Eir in that race as well.
Vodafone group’s CEO Nick Read has expressed interest in a recent conference call with analysts about expanding the company’s coverage in Ireland, saying he was looking into whether he wanted to extend reach into the Irish fixed telecom market and that the company already has “great momentum” here.
Virgin’s television presence would be a bonus for Vodafone, which has a relatively small footprint in the pay TV sector.
Three is also a contender to buy Virgin Media Ireland.
Already sharing mobile coverage with Virgin’s network, the telecom company could look to absorb the entire brand, but doing so would likely create the smallest wake of any potential buyer, considering the two companies already cooperate extensively.
Eir is likely out of the deal, according to an industry source, who said Eir is looking to build its infrastructure and coverage from within rather than through acquisition, a point supported by Brady’s comments about Eir’s billion euro expansion plan.
Private equity is also a potential suitor for Virgin Media Ireland if the other industry players are not interested.
Some firms reported to be involved include Mayfair Equity Partners, which once considered a €300 million bid to buy BT Ireland in 2019.
Granahan McCourt Capital is in the mix as well, which is headed by David McCourt, who is currently leading National Broadband Ireland’s (NBI) rural broadband rollout.
Virgin Media Ireland has accumulated €900 million in debt, and its €140 million annual earnings before tax may also have worked to scare off buyers. However, the credit rating agency Standard & Poor’s just assessed that the company will not have to pay any tax cash payments in the near future due to Virgin’s amassed net operating losses.
A deal for Virgin Media Ireland is expected to take place in the next 12 months.