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Virgin Media Remains Neutral

TIVO

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Virgin Media Inc. posted solid financial results for the second quarter of 2012, surpassing the Zacks Consensus Estimates. In the previous quarter, the average monthly churn rate was 1.4%, remaining same year over year. However, those who opted for Virgin Media’s services have shown their preference for its high-margin bundled services with superfast broadband offerings.

Virgin Media’s bundled services offerings are receiving huge market traction. At the end of the reported quarter, triple-play and quad-play penetration leaped 64.6% and 15.4% year over year, respectively. Management cited two positives for its future growth: (1) TiVo Inc. (TIVO - Analyst Report) developed next-generation TV platform, which supports on demand broadband video services and applications (2) gradual roll-out of ultra-fast 100 Mbps broadband network. We reaffirm our Neutral recommendation on Virgin Media as the stock price has soared nearly 46% in the last year.

Virgin Media is gradually rolling out the super-fast DOCSIS 3.0 network offering downstream speed of 100 Mbps and an upstream speed of at least 10 Mbps. The 100 Mbps network will be available throughout the UK by the end of 2012. At the end of the previous quarter, over 1.3 million customers subscribed to either 30 Mbps or higher services, constituting 31% of total cable Broadband subscribers. More than 590,000 customers are using 50 Mbps tier or higher tier services.

In January 2012, Virgin Media initiated a major network upgrade program. Through this program the 10 Mbps tier was upgraded to 20 Mbps. Existing 20 Mbps and 30 Mbps tiers were upgraded to 60 Mbps, 50 Mbps tier to 100 Mbps, and the 100 Mbps tier to 120 Mbps. The network upgrade program will be completed by mid-2013.

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