Consumers will maintain their spending on high-speed internet access in a recession, Virgin Media's chief executive has predicted on the eve of this week's launch of a "super-fast" 50mbps broadband product.
"Broadband is not a discretionary spend," said Neil Berkett, adding that the US-listed UK cable company even saw scope to increase prices in a market that only recently appeared defined by price wars between the likes of Carphone Warehouse, BT and British Sky Broadcasting.
Virgin Media, which now offers broadband speeds of 2mbps, 10mbps and 20mbps to customers in the half of the UK covered by its network, will this week claim a lead over rivals dependent on BT's DSL network with a 50mbps offering.
The roll-out, which follows a lengthy testing period, will reach half of Virgin Media's network by the end of December, with full coverage expected by June 2009. "It will be premium-priced," Mr Berkett told investors at a UBS conference in New York last week. "I see no reason to go in cheap."
The group had seen no deterioration so far in bad debt statistics, or in the number of customers it had to disconnect for failing to pay their bills, he noted, and in the third quarter, half of the new customers it signed up opted for one of its two highest-priced packages, up from 20 per cent a year earlier.
"Despite the current environment, despite the doom and gloom about people choosing very wisely and frugally, customers are paying for the superior services they need for their superior data consumption," he said.
Virgin Media was "the only player capable of exploiting this market", he said. BT's £1.5bn plans for a "super-fast" optical fibre network, which depend on regulatory agreement about the returns it can earn on the investment, would take the speeds BT could offer up to 40mbps, but "at that stage we'd be at 200mbps".
Mr Berkett did not disclose the price Virgin Media planned to charge for its 50mbps broadband service, and said it would have to test the market before being confident about the potential for price increases on its current products. However, there was "room for some positive movement" on pricing in broadband, he said.
The group last month secured approval to delay £2bn of repayments on its £4.3bn debt load, and announced a restructuring plan that would result in 2,200 job losses.
Mr Berkett added that highlighting the potential value of the tax asset accumulated during the UK cable industry's long period of heavy losses was a high priority.
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