Capital without equity? Simple. Ask Rupert

COMMENT: `Those who question why he should not have simply sold some of his BSkyB shares to fund his expansion don't know the nature of the beast'
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The Independent Online
You have to hand it to Rupert Murdoch. In the early 1990s he bet his company on Sky and won. Now he's betting his stake in BSkyB, or a part of it anyway, on his expansion plans in the Far East and the States. Essentially he is mortgaging his shares in the hope that when the reckoning comes five years down the line, he will have been so successful elsewhere that he'll be able to pay whatever's required to take them out of pawn. Those who question why he should not have simply sold some of his BSkyB shares to fund his expansion don't know the nature of the beast.

There have been two great and usually conflicting pulls in Mr Murdoch's corporate life. One is his insatiable appetite for capital to fund his vision of global hegemony. The other is his need to maintain an iron grip on the empire, which means protecting his power base, the Murdoch family shareholding, from dilution. In the Eighties and early Nineties this was achieved by getting the banks to fund him. He nearly lost his company as a result. Unusually, the refinancing he eventually achieved didn't involve any debt-for-equity swap. He then toyed with the weird and wonderful idea of a new class of non-voting equity, but was eventually laughed out of court by capital markets and their regulators. Some mug will always fall for it, however, and eventually MCI was persuaded to pay top dollar for what in effect is a non-voting stake (it is required always to vote with Mr Murdoch).

Plainly, MCI's money wasn't enough - so now this. The beauty of this latest ruse is that News Corp raises money on the back of its stake in BSkyB, though not with that sub-species of usurer, but at the same time he maintains control over the shares and hence the company. Clever though not wholly original. He did something similar with his stake in Pearson. As with anything to do with News Corp, however, we're going to have to await the small print before deciding whether this is also a good deal for the investor.

Germany comes up with cartel nightmare

If the Germans can foist an independent central bank on the rest of us, modelled on their own Bundesbank, why stop there? Why not an independent cartel-busting authority based, let's say for the sake of convenience, on the Bundeskartellamt which just happens to be, ja, German.

The idea of taking responsibility for vetting mergers away from all those sweaty politicians in Brussels with their mean little deal-in-the-corner, nationalistic calculations, and handing it to an independent agency, pure in mind and body and driven only by concern for what makes markets competitive, sounds wonderful in theory.

But reality has a way of rudely interrupting such reveries. And that is when the doubts begin to set in. For a start, is it really appropriate to divorce matters of some national importance, the ownership for instance of strategic businesses such as airlines or automobile companies, from legitimate political scrutiny?

Second, does it make sense to divorce competition policy - which would remain the province of the Commission - from the enforcement of competition law? Competition rules exist to control both private enterprises and state monopolies but under the German proposal only the private sector would be the responsibility of the new authority. It sounds like a bureaucratic nightmare. Third, does it make sense to divorce competition affairs from the broader ambit of Brussels to promote economic integration and the completion and efficient operation of the single market? Sat in splendid isolation, the cartel authority would be cut off from policy-making elsewhere.

Thus far the Germans have only managed to enlist the support of the Italians, though quite how Italy and the concept of rigorous application of competition law are related is a mystery to most people. The danger is that if the Germans bully other member states hard enough or rely on their indifference, then the proposal could slip through by default, Britain's opposition notwithstanding.

We may not like Brussels' interfering ways, as exemplified by its current proposal to lower the threshold at which it assumes authority for merger control from national authorities. But on this occasion there is a lot to be said for keeping hold of nurse for fear of finding something worse.

BT deserves no concessions

Mercury's merger with three of Britain's fledgling cable operators has raised afresh one of those perennially difficult policy issues for regulators and the Government - should BT be released early from the ban on carrying broadcast television across its network? BT has lobbied long and hard for early release, but so far without success, unless, of course, you count Tony "we are the government now" Blair, who has naively committed himself to concessions in return for BT wiring up public institutions to the superhighway (cost to BT, a piddling pounds 60m). The position of the Government and Oftel is that cable operators still need the advantage of being able to offer telephony and TV for a while longer if they are to establish themselves as serious competitors to BT.

Right or wrong, the approach has at least been applied even-handedly until now, for the ban on carrying broadcast TV applies to all national telecoms operators not licensed for local cable TV, including Mercury. By merging with licensed cable operators, Mercury appears to have found a backdoor way round the ban, though this could hardly be thought the primary purpose of the deal. All the same, there are plainly regulatory issues, for in essence Mercury becomes a national telecoms company able to offer TV alongside telephony. Unfair, BT is already claiming privately.

The question is whether the creation of this new player in the market has sufficiently changed the landscape to warrant a rethink of BT's position. Certainly it is the case that Mercury with its cable franchises tacked on will enjoy some kind of competitive advantage over BT. For the first time there will be a company marketing itself as something approaching a national brand in both telephony and cable TV. It is also the case that despite its best endeavours, BT has so far failed to come up with any viable alternative entertainment product to offer across its wires. Video on demand looked promising but dogged by technical and logistical difficulties, it doesn't look like coming to much for the foreseeable future. So should the authorities finally relent?

The answer is emphatically no. Mercury may have become a more powerful competitor to BT but it is hardly yet any kind of a match for the incumbent monopolist. Cable still needs time to develop and establish itself. BT has already established unhealthily close links with BSkyB and Rupert Murdoch. Just think what that alliance could do if BT were allowed to pump Sky down its wires. The ban should remain in place, at least until 2001, when it is officially up for review.