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
Voices
Barn owls are among species that could be affected
charity appeal
News
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Sport
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricketEoin Morgan reportedly to take over ODI captaincy
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas