Cable & Wireless axes 3,000 more jobs

Cable & Wireless, the international telephone company, is preparing to take a charge of up to £1bn in its interim results on Wednesday as the result of a radical overhaul of its loss-making web-hosting and data business, C&W Global, involving the loss of 3,000 jobs.

The job cuts will fall primarily in the US division of Global, but will also include redundancies in the UK and other parts of Europe.

Part of the £1bn charge will be from compensating employees who will lose their jobs. Another significant proportion of the charge will relate to the termination of leasing deals Global has with other telecoms companies, and with unwinding property contracts.

C&W already quantified one set of restructuring charges when it sold its American voice telecoms business last month. This deal also involved terminating leasing deals with other telecoms companies and created a charge of more than £200m.

C&W feels it must take radical action with the two remaining US businesses which are part of Global, a web-hosting arm and a wholesale internet business, because it still wants to meet its target of becoming free cash flow-positive by the end of the fourth quarter in the 2003-04 financial year.

C&W is thought to have decided not to yield to pressure from some investors to either shut down or sell Global. But the company's decision to significantly scale it down will undermine the position of Graham Wallace, C&W's chief executive.

Mr Wallace was a keen advocate of Global, spending $1bn (£670m) in the past year buying the US firms Digital Island and Exodus, which formed the web-hosting business. He said in October 2001 that he expected the web-hosting market to grow by 45 per cent a year.

In fact web-hosting has actually been much more sluggish and in September C&W warned shareholders of a drop in revenue at Global, its fourth profits alert in 18 months.

Mr Wallace, who last week persuaded the board to sign-off on the restructuring plan, is expected to keep his job despite shareholder pressure to oust him after a sharp fall in the company's shares during his tenure.

The company's shares hit a high of nearly £15 at the peak of the internet boom in Spring 2000 before dramatically declining. They closed at 139.75p on Friday.

C&W is also on Wednesday expected to post a loss of at least £550m. This could be much higher if the company shows all or part of the costs from the latest round of redundancies in the profit and loss account.

Mr Wallace, who has staked his career at C&W on building the worldwide data and internet operation, has been given another chance to turn Global around by 2004. But observers say the board will consider a management reshuffle if C&W hits more road blocks in the next 12 months.

Announcing a £1bn charge due to retrenchment would cut C&W's £2.2bn cash pile almost by half. Even after the reduction, C&W would be left with far more ready cash than many of its rivals. Most telecoms companies are buried under heaps of debt due to rapid expansion in the late Nineties.

Mr Wallace has been credited with selling some of C&W's assets at the time, amassing a substantial amount of cash to bolster the company in the current subdued market conditions.

To date, Global has absorbed £5bn of cash and the company is keen to slice its costs before it eats into any more of the capital.