United Utilities seeks merger to form regional telecoms unit

United Utilities is to begin talks about merging its telecoms business with the Scottish group Thus and Kingston Communications, the provider of the telephone service in Hull, to create one big regional operator.

The move by the North-west based electricity and water company comes after the mothballing of plans to float its fledgling telecoms unit, Your Communications, because of the telecoms sector downturn.

John Roberts, chief executive of United Utilities, said consolidation rather than flotation was the way forward for Your Communications in order to obtain the best value for shareholders. United Utilities has invested £210m in Your Communications, which cut its operating losses marginally to £10.8m in the six months to the end of September and expects to be profitable before interest, tax and depreciation by the end of this year.

Your Communications operates in the North and Midlands and holds the licence for broadband wireless access for the whole of the North-west. Mr Roberts said this could be the basis for the roll-out of a multi-regional network, bringing in other operators.

Announcing a 6 per cent increase in interim profits excluding exceptional items and one-off gains to £164m, Mr Roberts also reiterated that the group had no plans to follow AWG and Southern Water by financing its regulated utility businesses with debt. "We are beating our regulatory targets and our existing equity structure gives us the flexibility to grow," he added.

Simon Batey, finance director, said the group had identified 80 per cent of the £450m in savings it is aiming to achieve by 2005 and expected to beat the target.