C&W in talks with Telewest

Cable & Wireless is holding informal discussions with Telewest, the cable television operator, in a drive to expand its recently announced pounds 5bn link-up between Mercury and four other UK cable operators.

In what promises to be another hectic period of deal-making under Dick Brown, the recently appointed chief executive, Cable & Wireless is also believed to have given itself a year to reduce its 58 per cent stake in the hugely lucrative Hongkong Telecom division as the colony approaches the handover of power to China.

A deal with Telewest would give Cable & Wireless Communications, the merged group, access to more than 600,000 extra phone customers and a potential 4.3 million homes and businesses in the South-east, the South- west, the Midlands and the North.

Mr Brown is known to be keen to expand further the reach of the new cable group, as Mercury continues to show damage from its reliance on indirect access to residential customers through a special button on the telephone handset. Cable & Wireless yesterday disclosed a drop in Mercury's residential customer base by 7 per cent to 716,000 over the past six months.

The creation of Cable & Wireless Communications, which includes the UK cable franchises of Nynex CableComms, Bell Cablemedia and Videotron, enables Mercury to gain direct access to homes for the first time.

Mr Brown would only say yesterday that Cable & Wireless "continues to talk to people as we have been all along". However, the discussions are also thought to have involved Comcast, another UK cable operator, which is also understood to have held separate merger talks with Telewest.

It is unclear whether an alliance with a merged Telewest-Comcast group would go beyond a joint marketing partnership to include some form of equity stake. Sources suggested Mr Brown may want to include the cable operators in a bigger deal involving One-2-One, the UK mobile phone company which is jointly owned by Cable & Wireless and US West, a main shareholder in Telewest.

One suggestion is that he would be prepared to swap Cable & Wireless's long-distance phone interests in the US for some of US West's shares in Telewest. This would allow the British group to maintain its majority stake in Cable & Wireless Communications.

Separately, the moves to reduce the stake in Hongkong Telecom underline Mr Brown's determination to sort out the issue before next June.

Cable & Wireless yesterday revealed a 17 per cent rise in operating profits to pounds 746m in the six months to the end of September. However, a one-off pounds 199m boost to last year's figures meant headline pre-tax profits fell by 10 per cent to pounds 734m.