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Virgin Media Inc. – a leading entertainment and communication service provider in the U.K. is planning to launch small cell as a service (SCaaS), which will enable it to provide faster and much more cost-efficient mobile network infrastructure.

Small cells like femtocells and microcells are low-powered radio access nodes that run on licensed and unlicensed spectrum lying within a wide range of 10 to 200 meters. The small cell sites, which form an integral part of 3G network and telecom carriers will have to incorporate these into their 4G LTE network if they want to withstand unprecedented growth of mobile data traffic.

Virgin Media will acquire the small cell sites and assemble street furniture like lamp posts, for hosting the cells. They will also provide the necessary power supply, mobile backhaul connectivity and the combined service to the mobile operators. The New York-based company has already started its LTE trial run in the cities of Newcastle and Bristol and has recorded a speed of 20 Mbps at a distance of upto 350 meters from the nearest cell.

We believe that SCaaS as a business will be hugely beneficial for the carriers as they will be relieved from the challenges of site acquisitions and backhaul costs for small cell network deployment. The company is planning to try out the service initially with one or two mobile operators and could target its existing mobile backhaul customers. However, as LTE subscriber base improves in the U.K., the company could face competition from rival BT Group Plc (BT - Snapshot Report).

The current Zacks Consensus Estimate for Virgin Media Inc. is pegged at 43 cents for the third quarter of 2012 with a growth rate estimate of 257.4%. For 2012, the Zacks Consensus Estimate stands at $1.63 with a growth rate of 806.94% while for 2013, the Zacks Consensus Estimate stands at $2.36 with a growth rate of 44.26%.

Recommendation

We are maintaining our long-term Neutral recommendation on Virgin Media Inc. Currently, it has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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