Friday 9 December 2016

The cable broadband boss who's betting big on Ireland Inc's economic recovery

Having acquired TV3 and launched a new mobile service, Virgin Media is embarking on a major new investment drive here. Adrian Weckler spoke to the cable firm's CEO, Tony Hanway, about survival of the fittest in telecoms and TV

Published 28/01/2016 | 02:30

Dubliner Tony Hanway, who’s at the helm of Virgin Media in Ireland and TV3
Dubliner Tony Hanway, who’s at the helm of Virgin Media in Ireland and TV3
Richard Branson arriving by juggernaut at the RDS for the announcement that UPC Ireland is to become Virgin Media.

What happens when you climb to within tipping distance of Europe's mobile telecoms summit, only to be seduced over to the dark side of fixed line cable? That's what happened to northside Dubliner Tony Hanway. Having risen to the top of the Irish mobile industry as chief executive of an ultra-profitable O2 Ireland, Hanway was hooshed up again as chief commercial officer of O2 Germany just as the mobile giant was acquiring 20 million-customer rival E-Plus.

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But last year, the Killester-born GAA fan decided to return home to take up a different role entirely: head of Liberty Global's rebranded UPC network, Virgin Media.

He has no regrets. "If you ask me would I like to be a mobile network operator or a fixed operator, the latter is absolutely where I'd like to be," he says from a modest, bright office in Dublin's East Point business park.

"I've seen both and I wouldn't swap."

In one sense, you can see his point. While mobile operators scramble to defend margins and stave off margin-killing regulators and internet messaging startups, the company he has joined has pots of money to spend on long-term telecoms and television industry assets. Liberty Global's owner, the US billionaire John Malone, has been buying up networks, studios and content rights around Europe. In Ireland, that extended to the acquisition of TV3 in an €87m deal last year.

Now, the global giant is set to pump fresh money into a "significant" new cable network expansion across the country that will add "tens of thousands" of homes and businesses to Virgin's cable network, which is currently available to 800,000 of the State's estimated 2m premises. "Our network build rate will be 100pc more than we built last year," says Hanway. "It will be in the tens of thousands. It will be a significant percentage on our current network."

Hanway isn't pinpointing the location of the new network extension, but says it won't just be at the fringes of cities. "There'll be some new places," he says. "Yes, there's the obvious footprint around the metropolitan areas where we'll edge out into new estates. But there'll also be new builds in new areas which, in the recession, we probably pulled back a little from. Demand wasn't there. But I think it's completely different now."

This is a pretty big step for Virgin Media. In Ireland, the company has traditionally maintained that it did not make economic sense to venture too far from urban areas with its capital-intensive cable network. Now, it appears ready to think again.

The reason? It's the economy.

"Some people are missing the larger demographic picture here," says Hanway. "There are 4.6 million people in Ireland. Within 20 years, that looks likely to be six million. Right now, the recession is over, especially in the metropolitan areas where we're strong. Businesses are investing and growing. Employment is rising. People are consuming more media. This has to be a time to invest for us. Whereas for a lot of the previous decade it was a far more tenuous business case."

It might be pointed out that Virgin's expansion is probably needed to make up for the 24,000 MMDS customers it will lose in April due to the repurposing of the relevant spectrum. But Hanway insists the new fixed line network build will "clearly exceed" the loss of 24,000 MMDS customers. Even still, there is a limit to Virgin's expansionism. The operator appears to have made up its mind not to tender for the National Broadband Plan, the Government's €500m State-subsidised scheme that promises fibre-speed broadband to every rural home and business by 2020. This will be welcome news to Eir and Vodafone, currently thought to be the two leading contenders for the public tender.

"I would say, ultimately, that we won't be bidding," says Hanway. "We've stayed connected to the process and have been an interested observer. But as it moves into the crunch time now I think it's something that we'll pass on.

"It doesn't make sense for us with our current footprint, commercially. And we'd have some concerns about the actual number of households that are really reachable. It wouldn't really lend itself to a cable network, essentially."

The National Broadband Plan will, however, still have "a number of twists in the road to come".

Hanway thinks the Government was "correct" not to accept Eir's rural fibre plan projections, which would have forced it to cut the national tendering area from 700,000 premises to 400,000 premises. "If someone is going to make commitments like that, they should furnish payments up front and they should be binding," he says of Eir's plans. "Especially in a company that's likely to change management in the near term."

This friendly barb at Eir is not untypical of his style. While largely good-natured in essence, telecoms is a cut-throat industry where incremental advantage is sought and projected at almost every turn. In this vein, Hanway is defiant when asked about what many would consider to be Virgin's biggest competitive challenge in coming years: new fibre infrastructure being rolled out by Eir, Siro (the joint venture between Vodafone and the ESB) and a new State-subsidised service.

The competition, he claims, will be hampered by the weight of its own building program.

"Fibre rollout in Ireland is glacially slow," he says. "You've got Siro which is doing very limited stuff outside the normal metropolitan footprint. And then you've got Eir whose own website claims they've passed just 20,000 homes. So that leaves what? 1.99 million to go? I mean, it's going to be very slow. Plus, it's prohibitively expensive. I don't think it's going to become mass market any time soon at all." As market theories go, this is more than a little counter-intuitive. Fibre is widely seen as the holy grail in broadband connectivity. Once its laid, little is reckoned to get in its way. Hanway's argument, however, is wrapped up in the economics of the flagship gigabit services such fibre is promising.

"It's extremely hard to see how they [Eir, Siro] would make a return on it," he says. "We could easily launch a two gigabit product now, we're the leaders in that area [speed upgrades using network testing technologies such as Docsis 3.1]. We're going to remain the fastest in the market. Our network will have the highest average speeds."

So far as Virgin's current speed advantage goes, Hanway has some recent validation for his superiority contention. The online speed-testing service Ookla (which runs Speedtest.net) recently anointed Virgin as the fastest Irish broadband provider across its customers' average speeds. All in all, Ookla said, Virgin's average customer broadband speed in Ireland is 124Mbs, almost twice the 64Mbs of it nearest competitor, Eir.

But won't Eir's gradual transition to fibre cut that gap over time?

"No," he says. "As they gradually get their act together, we'll still keep getting faster. I actually see the gap growing, not shrinking."

Broadband and telecoms skirmishes are not Hanway's only concern. The TV business - in multiple guises - looks set to play a big part. As chief executive of Virgin Media, he's also now the overall boss of TV3, with the station's newly-appointed managing director, Pat Kiely, reporting to him. His will now be a powerful voice regarding the main commercial and strategic decisions the station takes in the immediate future.

Will more investment now go into the television network?

"Absolutely, yes," he says. "Both in infrastructure and in content and talent. We're already doing that. We have ambitious plans. They've been an underinvested company that's been operating through an advertising recession over the last five or six years. We're the perfect partner for them. We bring resources, we bring investment and we bring content."

Will TV3 launch more channels? "Potentially," he says. "It's early days yet. There was some stuff in the press recently about a 24-hour news channel. That was unfounded. People have asked whether there might be a Virgin channel or whatever. But none of these things are on the agenda right now. TV3 is the core brand there. Over time, as we build a more detailed, long term strategy plan, we'll be looking to expand the offering."

Hanway has ideas about what might become important in the TV wars to come. One of the biggest challenges, for broadcasters that range from the BBC and TV3 to Netflix to Amazon, is how to acquire or fund popular programming.

"Content prices are going up all the time," says Hanway. "The danger for a company like Virgin Media or Liberty Global is to be shut out of content. It therefore makes a lot of sense for us to start dipping a toe in the water of owning the content assets and understanding how they're created. TV3 has created some great content like 'Red Rock'. And there's more to come. That gives you a front row seat so that you're not out there in a Dutch auction, bidding for ever more expensive content. This way you've got a share of the pie. And that's why Liberty Global has been investing in All3Media [Midsomer Murders studio] and other content houses. So it's a work in progress with TV3." Hanway also believes that TV advertising is due a shake-up. "One of the pressure points when traditional TV comes under pressure is advertising," he says. "I mean how it's consumed. I always have a problem with TV advertising. It's very untargeted. It's just beaming into the house. A 15-year-old will be stuck watching a detergent ad even though it's not a product he'd buy. What we have to look at is how we can start using targeted advertising so that people can see ads that are more relevant. This would be very interesting for advertisers. Liberty Global can lead the way in that."

Advertising is not Hanway's only challenge. Virgin - and UPC before it - has seen its TV subscriber figures fall significantly compared to Sky in recent years. Where once the two were nearly on a par, the gap is now two to one, with Virgin falling 9pc to 387,000 TV customers compared to Sky's 700,000 remaining steady.

Does Hanway expect to Virgin's TV subscriber base to stop falling anytime soon? "It's stabilising," he says. "I expect it to stabilise. That's what we're seeing. I think our platform has improved. I think our interface is better. And I don't think there's going to be a huge gap between us and Sky in terms of TV. But at the end of the day, they're a TV company and a content supplier. We're a connectivity company that adds TV."

"Let's face it. they probably lose money on every broadband customer that they connect because it supports the premium price they get from content. I think we're in a better position. We have a decent revenue stream from TV but our core product is the product that people want which is faster broadband."

New expansion for Virgin's network: "Our network build rate will be 100pc more than last year. It will be in the tens of thousands."

Bidding for the National Broadband Plan: "Ultimately we won't be bidding... It doesn't make sense for us commercially."

TV3: "We bring investment... We'll be looking to expand the offering... A 24-hour channel is not on the agenda."

Fibre competitors: "Fibre rollout in Ireland is glacially slow ... and expensive. I don't think it's going to become mass market any time soon."

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