Sources close to C&W Communications (CWC), said the financial setback had emerged in figures supplied to C&W for the three months to the end of June. CWC's shareholders will not hear of the disappointing performance until the company reveals its first full set of public results, for the six months to the end of September, in autumn.
The internal figures are understood to show that revenues failed to meet expectations across the group, though with particular problems in the cable divisions, all of which are in the middle of big investment programmes. CWC was formed from the merger of Mercury with three cable groups - Bell Cablemedia, Videotron and Nynex CableComms.
One source said: "It is true that there are certain parts of the business which aren't meeting expectations. Four-way mergers are complex things and this was never going to be plain sailing."
According to sources, C&W has ordered CWC, in which it has a near 53 per cent stake, to cut spending on the roll-out of cable infrastructure to homes. The cuts could also hit CWC's planned attack on the digital TV market, with the launch of a digital cable service earmarked for the end of the year.
CWC had aimed to invest pounds 300m on digital infrastructure including set- top boxes for the launch, which is taking place jointly with Telewest, the second-largest cable group. Mercury, which provides all of CWC's profits, was not affected by the investment review.
The financial problems could create further tensions between Dick Brown, chief executive of C&W, and his counterpart at CWC, Graham Wallace. Pressure on CWC's management team has increased after fresh doubts emerged about the group's plans to launch a single marketing brand in September.
It has also emerged that divisional directors were not consulted on the surprise decision to award the multi-million pound CWC advertising contract to a lesser-known London agency. The appointment of Rapier Stead & Bowden was taken by Ruth Blakemore, CWC's promotional head, shortly before she was ousted earlier this month as marketing director. Mr Wallace is understood to have strongly backed Ms Blakemore's appointment in the spring, despite opposition from Mr Brown.
Rapier Stead & Bowden was the agency used by Ms Blakemore during her time as Bell Cablemedia's marketing director. The agency was responsible for a controversial campaign attacking British Telecom's phone charges under the slogan "British Telecon", which led to an investigation by the Advertising Standards Authority. Company sources said rival tenders for the contract from bigger agencies, including Saatchi & Saatchi, were apparently not shown to the directors of CWC's business units, despite assurances that some 10 senior executives would have a say in the appointment.
One source said the detailed invitations to bid for the advertising contract may have varied between different agencies. "There was rather a lot of shock around about the decision. The bigger agencies weren't necessarily given the same brief."
There was more unease over the decision to brand the company as Cable & Wireless, rather than as Cable & Wireless Communications, a move which some insiders had suggested could cause confusion. To further complicate matters, until the launch in September the four separate companies are continuing to use their old brands, such as Mercury, alongside the C&W logo.
People & Business, page 18Reuse content