Outlook: What future now for ITV as digital dream lies in ruin?

Aviva a dividend cut; Telecoms meltdown
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The Independent Online

The demise of ITV Digital has been on such a long fuse that the story struggled to make the front pages when the administrators finally admitted defeat on Monday night and put the assets up for sale. It has been like watching a slow motion road crash, with the vehicle obviously out of control and heading for a grisly end almost from the moment the service was launched towards the end of 1998.

This should not be allowed to diminish the momentous nature of the story. The débâcle has left ITV more than a billion pounds out of pocket, has completely torpedoed the Government's hopes of an early switch from analogue to digital TV and has left Rupert Murdoch's BSkyB as a near monopoly supplier of pay TV in Britain. The 15 football clubs that face possible bankruptcy is almost by the by. It has also dealt a serious body blow to the self confidence of ITV, which looks in an increasingly perilous position caught between the pincer movement of pay TV and a resurgent BBC.

For the City, the administration and sale looks like progress. The cash outflow is stemmed, even if there is the ongoing liability of a £500m lawsuit from the Football League. The very worst thing that could have happened from the City's point of view would have been an eleventh hour deal with the Football League that would have allowed ITV to carry on. At the same time, however, ITV's failure to make a go of its digital platform is a truly damning indictment. Can ITV do anything right outside the protected world of its semi-monopolistic broadcasting franchises? Not on the evidence of ITV Digital, which leaves everyone wondering what is to become of the two companies that control it, Carlton and Granada.

OK, so one day the two will be allowed to merge, which should save a few more pennies and put an end to the infighting that so cripples ITV as presently constituted, but it won't of itself stem the decline as the alternatives to ITV grow and prosper. For that to happen requires entrepreneurial flair and vision. There was none of it in evidence at ITV Digital.

Aviva a dividend cut

It is so much better to Aviva than Arriva, or so Pehr Gyllenhammar, chairman of CGNU, would have us believe. For those who haven't been following the gathering storm over CGNU's planned name change, the insurance goliath wants to call itself Aviva, which it thinks will convey the impression of zest for life. In Hebrew the word means "spring", so the idea is not so far off the mark. It also bears a striking resemblance to the name Arriva, the quoted bus company, and is bizarrely used by a number of lesbian websites.

With the Swedes so much in the news, it seemed almost appropriate that it fell to Mr Gyllenhammar, another Swede (they seem to be all over the place these days), to defend the name change at the company's annual general meeting yesterday. Nobody would think of Volvo, a company he once ran, as a silly name, he pointed out, yet in its genesis it certainly was one. In Latin it means "I roll" and it was apparently deliberately chosen because it didn't have connotations. Today it is one of the world's great auto brands.

None of this was enough to placate angry shareholders. An affair with Ulrika Jonsson might have done the trick but the PRs were unable to pull that one out of the hat. Why companies continue to think up sill name changes is a mystery to all but the corporate makeover specialists who earn their living from them. Apparently unnecessary name changes are always guaranteed to stir resentment, but when they are accompanied by other bad news as well, they just add salt to the wound. Think back to Consignia, which has become a byword for poor service since the Post Office adopted it. British Airways' ethnic tailfins were another example of the same thing. The idea was that the rebranding would send out the message of corporate transformation into "new", globalised BA. In fact it became a symbol of the crisis the company found itself in. Eventually it became so derided that it had to be scrapped.

In CGNU's case, the name change was accompanied by a 40 per cent "rebasing" in the company's dividend. Even if you buy CGNU's justification for the cut – that the company needs to conserve capital to take advantage of all those exciting new growth opportunities opening up in the savings market – this was hardly the moment to announce a name change as well. Generally speaking, investors are better at allocating capital than managements, and most shareholders would have preferred to make their own choices on what to do with the "excess" dividend income. The name change rather confirms that view.

Telecoms meltdown

Can there be no end in sight for the telecommunications meltdown? Yesterday, Vodafone shares lurched to a new four-year low after reporting slower than expected subscriber growth in the US. New subscriber numbers for the group as a whole are due tomorrow, and mighty nervous the stock market is about them too. Worth an astonishing $400bn at the height of the telecoms boom in March 2000, the company's market capitalisation has been on the slide more or less ever since and the shares are now back to a level they were at four years ago before the hype about the mobile revolution took hold.

Elsewhere, shares in Logica tested new three-year lows. In this case there was no particular reason for the renewed bout of selling other than just generally negative sentiment. Logica does lots of different things, and with no net debt on the balance sheet, it's hardly another Marconi or fly by night dot.commer. But its main growth business was in text messaging software, which has now largely run its course, and there are legitimate concerns about where the next big thing will come from. The hope was that it would come from 3G multi-media messaging software, but the market for 3G software is more crowded than it was for text messaging, the mobile phone operators keep cutting back on planned 3G spending, and nobody's too sure whether there is much of a market for 3G anyway. Vodafone and Logica, the one a mobile phone operator, the other a supplier of software to mobile phone operators, are two halves of the same coin. Where's the growth going to come from to justify previously puffed up valuations?

Calling the bottom of any market is as futile and risky a business as calling its top, and judging by the sheer weight of sell notices out against both these companies right now, it might not pay to bet against the herd quite yet. More skeletons could be lurking in the cupboard. But just think back to all the buy notices there were at the top of the market, and dwell on how wrong they proved to be. Mobile telephony stands at the cusp of two different generations of technology. For the past eight years its growth has been powered by the switch from analogue to digital. Two and a half generation devices have been a flop, but the possibilities for 3G are almost boundless. Few investors are going to wade back into these sectors as long as the future remains so uncertain, but on the basis that it is always darkest just before the dawn, it might soon be time to start thinking about it. The telecoms sector is oversold. It's just convincing everyone else of it that is the problem.

jeremy.warner@independent.co.uk

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