Cable TV companies snatch BT's business: Cut-price telephone services attract 15,000 customers a month as fibre networks spread

BT is losing 15,000 customers a month to cable television companies offering cut-price telephone services over their wires. By the end of March, the cable television industry had 150,000 telephone lines installed.

The growth of the cable telephone sector is causing increasing worry at BT as it prepares for this summer's pounds 5.5bn sale of the Government's remaining 22 per cent stake.

Cable television companies win customers by offering prices that typically undercut BT by between 10 and 20 per cent on call charges. Other incentives may include very low connection charges, monthly bills and call charging by the second rather than by the unit.

Despite BT's size - it has about 19 million residential domestic customers and a total of 26 million installed lines - the company is at a disadvantage because its licence does not allow it to offer television over the network. BT was refused permission for this because the Government and the regulatory body, Oftel, were concerned that it could have killed off the cable sector at birth.

Competition from the cable companies is expected to accelerate as the pace of network installation increases.

Of 130 cable franchises awarded in the UK, only 58 are so far open for business.

Investment in the cable TV industry - fuelled largely by North American companies - is now running at about pounds 500m to pounds 700m a year, according to the Cable Television Association. The main shareholders in the franchises include TCI of the US (the world's biggest cable operator), US West, Nynex, South Western Bell and Bell Canada.

The cable companies have so far relied mainly on Mercury, BT's rival, to connect their local calls into national and international networks. However, BT, seeing the growth of the industry, is now also keen to take on this role and is talking to the cable companies.

As well as working with the cable companies to carry their calls outside the local networks, BT is at the same time fielding 'cable TV defence teams' to win back customers or to head off the cable companies as soon as they appear in an area installing their fibre networks in the streets.

BT is also launching a series of temporary offers including cheap calls at certain times to specified countries and special rates for families and friends who call each other frequently. For the future, the company is considering how its technology can be exploited to gain an edge.

One option could be to offer customers 'video menus' in conjunction with high street video chains, with the chosen video downloaded to the video recorder over the telephone line.

The Government, which still owns about 22 per cent of BT, is expected to raise up to pounds 5.5bn in BT Three. There are high hopes in Whitehall that the offer will attract many more small shareholders.

One hundred banks, stockbrokers, building societies and financial advisors are being invited to act as share shops to sell the shares to private investors. This compares with eight share shops for the sale of the second tranche of BT shares at the end of 1991.

BT's shareholder register has swelled to 2.3 million from 1.1 million before the sale of the second tranche of shares. The company, faced with the administrative burden of mailing reports to the shareholders and hiring vast venues for annual meetings, would privately prefer the shares to be sold to institutions.