BT keeps door open to C&W merger

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

JEREMY WARNER

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.

PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Laura Trott with her gold
Commonwealth Games
Arts and Entertainment
Gal Gadot as Wonder Woman
film
News
Bryan had a bracelet given to him by his late father stolen during the raid
people
Sport
France striker Loic Remy
sportThe QPR striker flew to Boston earlier in the week to complete deal
Extras
indybestSpice up your knife with our selection of delicious toppings
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Training/Learning and Development Coordinator -London

£28000 - £32000 per annum: Ashdown Group: Training/Learning and Development Co...

Training Programme Manager (Learning and Development)-London

£28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...

.NET Software Developer (.NET, C#, ASP.NET, front-end)

£30000 - £45000 per annum: Harrington Starr: A Global Financial Service Organi...

C# Web developer (C#,MVC,ASP.NET,SQL)

£30000 - £40000 per annum + Bonus+Benefits+Package: Harrington Starr: C# Web d...

Day In a Page

A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on
It's the best of British art... but not all is on display

It's the best of British art... but not all is on display

Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
Critic claims 'I was the inspiration for Blanche DuBois'

Critic claims 'I was the inspiration for Blanche DuBois'

Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
Sometimes it's hard to be a literary novelist

Sometimes it's hard to be a literary novelist

Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

Edinburgh Fringe 2014

The comedy highlights, from Bridget Christie to Jack Dee
Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

The woman stepping down as chair of the Heritage Lottery Fund is worried