The three private equity players which have made a bid approach to NTL, the UK cable operator, were keeping shtum about their intentions yesterday, yet, from the outside, it is hard to figure out what on earth their game plan could be. NTL is barely out of intensive care, having suffered one of the worst corporate road crashes of the last downturn. That it could so soon attract a bid barely seems credible.
Part of the explanation may be that private equity is so flush with cash that it scarcely knows what to do with the stuff. Spend, spend, spend seems to be the order of the day, even if that means acquiring riskier assets than financial buyers have hitherto been prepared to bet on. But are these players really so desperate that they would pay £10bn for the pile of old broken bones that is NTL?
The case for doing so goes something like this. Most of UK Cable's mountain of debt - the money spent over 20 years or more to dig up the roads and lay the network - was written off or swapped for equity in a series of refinancings a few years back. Stripped of its debt, the company is now reasonably cash generative.
What's more, the merger with Telewest has allowed for the creation of a single UK cable company, with continued opportunities to cut cost, rationalise operations and provide a more coherent service. In time, it might even lead to an improvement in cable's notoriously poor standards of customer service. The recent acquisition of Virgin Mobile also allows for the quadruple play of landline, pay TV, broadband and mobile all bundled together in a single charge. In other words, a new dawn beckons.
Even so, it requires a leap of faith to think that cable can again be geared to the eyeballs and still hope to make headway in a market which is becoming viciously competitive for all these services. Private equity bids typically involve 80 per cent gearing, a level of loans that would return NTL to the debtors' prison it was in before.
NTL's two biggest shareholders, Virgin's Richard Branson and the American hedge fund manager Bill Huff, are as enthusiastic as ever about UK cable's prospects, believing, apparently seriously, that cable is now set up to mount a potent challenge to Sky in pay TV and British Telecom in broadband and telephony. Few would share their optimism.
As things stand, the biggest loser in the present broadband price war looks like being cable, which already has a large portfolio of broadband customers all paying excessive prices. Still, private equity has got to shift that unwanted cash somehow and NTL will certainly swallow quite a bit of it. Mr Huff, for one, has already made a great deal of money out of UK cable's reconstruction. If I were him, I'd take whatever it is that private equity is offering and run.
Water grid: what a waste of money
The Environment Agency is due shortly to publish a study on the desirability and viability of setting up a national water grid that would allow water to be pumped from areas of the country where it is plentiful to regions - primarily London and the South-east - where it is scarce. There is nothing new in the idea: it goes back decades but hitherto has repeatedly been rejected as far too expensive to be worth seriously considering.
The present, near-drought, conditions have given it renewed resonance. There has been a little bit of rain in the South-east over the past week or two, but another dry winter and hot summer would undoubtedly plunge London and the home counties into serious crisis. Is not a water grid the answer to the problem? Not according to Chris Davenport, international business manager at the utility consultancy McKinnon and Clarke, and it is hard to disagree with him. Never mind that by the time it was built, the skies would in all probability have opened and the crisis would be over.
The problem for Britain in transporting water long distances is lack of elevation. High mountain ranges allow for fast-flowing waterways over hundreds of miles throughout much of continental Europe. In Britain, on the other hand, the water would have to be expensively pumped up river and down dale to make it flow from north to south.
That's why water companies in Britain are broadly based around distinct river catchment areas, making the marshalling of what water resource there is inexpensive and easy to achieve. The problem for the South-east is not so much lack of water as too many people.
Nonetheless, to ship water in from outside the catchment area would be a complete waste of money when so much of the region's existing water resource is being wasted through leakage and excessive usage. Adequate measures to fix the leakage problem, ensure greater water catchment and storage, and encourage more efficient use of the stuff would be a far cheaper solution to the problem than pumping it in from Wales, Scotland and Northumbria.
The water crisis in the Southeast is not some act of God beyond the control of mere mortals but is largely of the industry's own making. Years of adequate rainfall have encouraged complacency and underinvestment. Whoever it is that ends up buying Thames Water, currently being sold by its German owners RWE, needs to prepare for a much more demanding environment than Thames has got away with up until now.
Broadband: making it easy to switch
Belatedly, the communications regulator Ofcom has announced proposals to make it easier to switch broadband supplier. The measures are long overdue. What is the point of the present price war in broadband when existing subscribers find it so difficult to take advantage of the brave new world of "unbundled" competition?
OK, so some subscribers have found it relatively painless to switch supplier. But in a large number of cases, the process is so time-consuming and frustrating that only the knowledge that the existing supplier is deliberately making it so spurs the subscriber on to persist with the endeavour. Exhaustion forces many to abandon the exercise.
To switch, you must first obtain a "Migration Authorisation Code". In attempting to obtain this code, calls and e-mails are left unanswered, ignorance, technical difficulties, and lack of resource are feigned. Squeezing blood out of a stone would be easier. Attempting to communicate with many of these organisations is like stepping aboard the Mary Celeste. The lights appear to be on, but there is no one there.
If it is difficult to undertake a simple switch, it is doubly so if you move into a property which had a pre-existing broadband line. In these circumstances it is well nigh impossible to get either British Telecom or the broadband supplier to take any action at all. A pre-recorded message at Ofcom invites you to phone BT. A pre-recorded message at BT invites you to phone Ofcom.
Whatever the explanation for these failings, they are acting as a severe barrier to fully blown competition in the broadband market. When it is made so difficult to switch, customer inertia becomes the order of the day. As a consequence, prices don't fall as fast as they should and economic activity suffers accordingly.
In other industries which have been deregulated, these early teething difficulties have eventually been overcome. It is now relatively easy to switch electricity and gas supplier. The banks have also been forced to dismantle the obstructions account holders faced in switching. Similarly in mobile telephony, number portability - something which the industry pretended was technically extremely difficult but in fact turned out to be as simple as turning on a switch - has transformed the competitive landscape.
Presumably, broadband will follow the same pattern. But it is taking its time, and in the meanwhile many customers are being forced to pay more than they should. Either that, or, for weeks and months, going without the service at all. What a shambles.Reuse content