Microsoft's link-up will not worry customers

Microsoft seems to have got away with it after all - what competitors and even most objective observers believe is blatently anti-competitive behaviour. By pre-loading access software to the Microsoft Network, its proprietary on-line information service, into every copy of Windows 95, Microsoft effortlessly signs up 9 million network subscribers and a vast potential market thereafter at very little incremental cost.

What CompuServe and America On-line, just two of the Microsoft Network's competitors, would give for that kind of instant client base. Though the US Justice Department insists that its investigation will continue, giving Microsoft the go ahead to proceed with the Windows launch as planned on August 24 is tantamount to approving the link. Forcing Microsoft to unbundle now would have been just about feasible; closing the door after the horse has bolted is going to be virtually impossible. It is the sort of fudge you might expect from Japan or some European countries, but in the Land of the Free?

There is a counter-argument, however. Immediate competitors may be disadvantaged but is it really so bad for the consumer? Microsoft is providing an easy access to near-limitless information for computer users. It is providing very little information on its own, but is merely a conduit for other information providers to distribute their wares. Plenty of suppliers, not least MAID, the UK company that yesterday announced it would provide its services on the Microsoft network, are very happy indeed to piggyback on Windows 95. In the end, customers still get to choose what they want to use, and what they are prepared to pay for. Microsoft is just providing the means.

There are, of course, advantages in controlling the gateway. Microsoft can load its own pages and those of close partners nearest to the gate, thereby getting greater attention. That this is an advantage is proven by the experience with Sabre, the airline scheduling guide owned by American Airlines. Travel agents using the service tended to pick American Airlines flights to offer their clients simply because these were the first options provided on the screen for any particular route.

The DoJ might want to look at this issue, and reach an agreement with Microsoft about the administration of the network. But it is probably wise not to enjoin the company from bundling its services altogether. On the whole, customers and suppliers are likely to be happy with their preloaded network access.

How much for Northern's rump?

What price regional electricity companies? With the current spate of bids in the sector, it is a question now occupying some of the City's cleverest minds. The poor old taxpayer can only muse on what a shame it is that it didn't occupy them more four years ago, when the RECs were privatised at what we now know was a gross undervalue. Still, that is now water under the bridge; division of the spoils is now the order of the day. Next Wednesday, shareholders in Northern Electric meet to approve the first stage of the company's plans to give them back a cool pounds 500m. Some serious questions need to be asked about the value of what is left behind in the rump company. The City's number crunchers are coming up with some very different answers.

The rump will have the same management and the same businesses, but its capital structure will have been altered radically, because borrowings will rise sharply after the payments to shareholders.

The only common ground in the dispute over Northern's value - which foreshadows similar arguments over South Western and any other REC likely to be bid for - is that if you take the pounds 5 a share the giveaway is worth from the current share price of just under pounds 9, the rump must be valued at just under pounds 4 a share. So far so good.

According to Northern and its advisers, that is a serious undervalue of the rump, which ought to be worth at least pounds 5 and possibly as much as pounds 7 a share. South Western will be saying much the same. At the other end of the arguement, it is claimed that anything more than pounds 4 a share - the level implied by the market - is quite unjustified, and even that might not be sustainable.

Northern has forecast steadily increasing annual dividends from the rump company. At pounds 4 a share, the dividend yield will be a handsome 11 per cent, which is more than twice the current going rate for the RECs. Surely the rump shares should rise to bring the yield nearer to the typical level for a British utility?

The counter-arguments take several forms. The valuations used for US utilities, which average 90 per cent gearing, imply an 11 per cent yield for Northern anyway. Since Northern's peak gearing will be even higher, an 11 per cent yield does not seem an unreasonable level.

Furthermore, there should be a hefty allowance for risk in the Northern rump's price, to reflect the fact that interest payments will reduce its dividend cover substantially and because dividends will therefore be much more vulnerable to force majeure, such as changes in interest rates, messing about by Professor Stephen Littlechild, the electricity regulator, or political interference from a Labour government.

Northern will certainly have to produce cost savings to the limit of what is possible and make a tremendous success of its non-distribution businesses to finance its dividend promises.

The company's supporters in the City are certainly giving shareholders the impression that two and two makes five, that a scorched earth policy will leave more fertile ground behind. Common sense dictates that high gearing is more likely to weaken the company than strengthen it. Delivery on the dividend is by no means guaranteed. On that basis, the market is right to demand a yield on the rump that exceeds by quite a margin even the income on a conventional long bond, unflattering though that might seem.

MAID is vindicated

MAID, the business information company, was one of those flotations that seemed to mark the top of last year's new issues boom. Nobody could take the company seriously, or its youthful chief executive, Dan Wagner, and the shares have consistently traded below even the much reduced issue price sponsors were eventually forced to settle for. Yesterday's extraordinary 75p rise to 157p, seems finally to have vindicated Mr Wagner and his supporters.

In itself, the Microsoft deal couldn't possibly warrant that kind of price movement. Becoming a Microsoft network information provider only weeks before the launch of Windows 95, which will hugely expand the network's pool of users, is certainly a coup with possibly quite substantial commercial benefits. But it is not going to transform the company. The deal does, however, help to close the credibility gap; MAID, it seems, is not after all the-fly-by night operation many had assumed. A Microsoft endorsement is still a mighty thing.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Lou Reed distorted the truth about his upbringing, and since his death in 2013, biographers and memoirists have added to the myths
musicThe truth about Lou Reed's upbringing beyond the biographers' and memoirists' myths
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the Apple Watch for you? Well, it depends if you want it for the fitness tech, or for the style
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own