BT keeps door open to C&W merger

Merger expectations remain high, while Oftel sticks to tough line on future pricing controls


British Telecom is still hopeful of eventually securing an agreed merger with Cable & Wireless, despite the recent impasse in talks between the two over valuation and strategy.

For the time being talks have stalled, but BT is confident that they can be reopened once C&W has appointed a new chief executive to fill the gap left by the recent enforced departures of Lord Young and James Ross, chairman and chief executive of the company respectively. The new chief is thought almost certain to be one of the American candidates.

At the same time BT can expect little easing of the tough stance taken on pricing controls by the industry regulator, Oftel, in proposals to be published this week. Despite a fierce lobbying campaign from BT, Don Cruickshank, the director general of Oftel, is sticking to his guns in demanding a much lower rate of return on capital than BT has enjoyed in the past.

Any deal between BT and C&W would face formidable regulatory hurdles in Britain and Hong Kong, where C&W's most valuable asset is based - its 57.5 per cent stake in Hongkong Telecom. The merger would also encounter difficulties in Germany, where the two companies have stakes in rival telecommunications groups.

However, none of these obstacles are thought insurmountable. BT is confident that the deal would win the support of ministers.

As part of the takeover, BT would undertake to dispose of Mercury, its chief rival in the UK, and its stake in One-2-One, the mobile phone company. If the disposals were to one of the big foreign telecoms companies, the effect might be to strengthen competition in the UK market rather than dilute it, regulators have been told.

Ministers have already indicated that they would use the Government's golden share in C&W to block any foreign bid for C&W as a whole while rules remain in place that prevent UK companies acquiring controlling interests in overseas telephone groupings.

However, they would not in principle be opposed to a foreign takeover of Mercury by itself if the effect were to facilitate the deal with BT.

BT this week faces further confrontation with Oftel over new price controls expected to be announced on Wednesday.

Mr Cruickshank has already proposed a very substantial cut in the rate of return BT is allowed to earn on assets. This in turn would mean a further tightening of the present formula governing tariffs.

BT has lobbied hard against the new rate-of-return proposal, claiming that it is too low to ensure adequate investment in Britain's telecoms infrastructure, but there is no evidence that Mr Cruickshank is prepared to ease his position.

In a recent interview with the Independent Sir Peter Bonfield, newly appointed chief executive of BT, said: "Everyone likes low prices but we are now amongst the lowest in the world. If return on capital is set too low you will get long-term under-investment. The best way to get sustainable lower prices is through competition and decent levels of investment, not artificial price caps".

Sir Peter insisted that the rest of the industry had been generally supportive of BT's position. He was hopeful that differences with the regulator could be sorted out during the process of consultation, but if BT fails to get an acceptable solution, it is prepared to test its case with the Monopolies and Mergers Commission.

Sir Peter said BT would seem a very different sort of company five years hence, much more international and operating in many more different services - "a communications company rather than a telecoms company". "We would certainly expect to be the best service provider in the UK. We have a reputation internationally for technical excellence which we intend to build on. But the regulator needs to support us in this endeavour".

Oftel promises that a tougher price cap will be accompanied by greater pricing freedoms for BT. "The price cap will remain after the summer of 1997", Mr Cruickshank says, "but what it will be and what proportion of charges it applies to is still up for grabs".

Unusually, Mr Cruickshank has found some support for his view in the City, generally highly critical of the regulator's initiatives. A recent report from Robert Fleming, the investment bank, suggests that BT is exaggerating the likely effect of Mr Cruickshank's proposals on its profits.

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Recruitment Genius: Experienced Financial Advisers and Paraplanners

Negotiable: Recruitment Genius: This extremely successful and well-established...

Guru Careers: FX Trader / Risk Manager

Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...

Guru Careers: Investment Writer / Stock Picker

Competitive (Freelance) : Guru Careers: An Investment Writer / Stock Picker is...

Day In a Page

How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map
Lionel, Patti, Burt and The Who rock Glasto

Lionel, Patti, Burt and The Who rock Glasto

This was the year of 24-carat Golden Oldies
Paris Fashion Week

Paris Fashion Week

Thom Browne's scarecrows offer a rare beacon in commercial offerings
A year of the caliphate:

Isis, a year of the caliphate

Who can defeat the so-called 'Islamic State' – and how?
Marks and Spencer: Can a new team of designers put the spark back into the high-street brand?

Marks and Spencer

Can a new team of designers put the spark back into the high-street brand?
'We haven't invaded France': Italy's Prime Minister 'reclaims' Europe's highest peak

'We haven't invaded France'

Italy's Prime Minister 'reclaims' Europe's highest peak
Isis in Kobani: Why we ignore the worst of the massacres

Why do we ignore the worst of the massacres?

The West’s determination not to offend its Sunni allies helps Isis and puts us all at risk, says Patrick Cockburn
7/7 bombings 10 years on: Four emergency workers who saved lives recall the shocking day that 52 people were killed

Remembering 7/7 ten years on

Four emergency workers recall their memories of that day – and reveal how it's affected them ever since
Humans: Are the scientists developing robots in danger of replicating the hit Channel 4 drama?

They’re here to help

We want robots to do our drudge work, and to look enough like us for comfort. But are the scientists developing artificial intelligence in danger of replicating the TV drama Humans?
Time to lay these myths about the Deep South to rest

Time to lay these myths about the Deep South to rest

'Heritage' is a loaded word in the Dixie, but the Charleston killings show how dangerous it is to cling to a deadly past, says Rupert Cornwell
What exactly does 'one' mean? Court of Appeal passes judgement on thorny mathematical issue

What exactly does 'one' mean?

Court of Appeal passes judgement on thorny mathematical issue