Outlook: AT&T might untangle the cable knot

THERE'S NEVER a dull moment in the telecommunications industry. No sooner have Telecom Italia and Deustche Telekom lumbered up the aisle intent on redrawing the telecoms map of Europe, than along comes a deal which promises to carve up a significant part of the UK market too.

This time the elephants doing the dancing are AT&T, the daddy of them all, and MediaOne, the US cable operator.

Such is the frenzy of merger activity in the US as the various players jockey for pole position in the information age, that MediaOne was already betrothed to Comcast. Now freed from the constraints of yesteryear, AT&T is desperate to recreate the empire that was broken up when the local phone companies, the Baby Bells, were forcibly spun off.

It has already acquired America's second largest cable operator, TCI. Snapping up MediaOne would make AT&T a major player in both the local and long-distance US telephone markets. There are, of course, a few loose ends to tie up. First, it needs to arrange $30bn of debt financing. Even for a company like AT&T that is a big bite, following so soon after the $60bn TCI deal. Then it needs regulatory approval.

And then, finally, there is the matter of the two transatlantic orphans that AT&T will inherit as part of the deal - a 50 per cent stake in One2One, and a controlling 51 per cent stake in Telewest. Both fit the category of non-strategic assets. Furthermore, both have to be disposed of anyway because of the non-compete agreement that AT&T has with BT - something, incidentally, which the regulators might care to cast an eye over while they are at it.

One2One was already on the block following the decision by Cable & Wireless, the owner of the other 50 per cent, to become Cable but not Wireless. As for Telewest, the incestuous nature of the UK cable industry and the desperate need of the various players to make a viable whole out of the loss-making parts, means it was never likely to remain in its present form.

The welter of overlapping cross shareholdings make the UK cable market a tricky one to keep up with. C&W also owns a 53 per cent stake in Cable & Wireless Communications, itself the product of a four-way merger. Comcast (remember that one) meanwhile owns a stake in NTL, the other player of any size on the UK cable scene.

A consolidation of the three big cable players into one ought not to make the regulators lose any sleep since they do not compete with one another anyway. What's more, it would make everyone else's life easier. The AT&T bid may just be the catalyst the industry needs.

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