Outlook: Cable guys

Outlook: Cable guys

WHEN IN a hole, stop digging. Unless, of course, you are a cable operator. The sums spent tearing up the roads and laying down fibre optic by Britain's cable television and telephony companies get more mindboggling by the day.

Telewest, which owns franchises covering one in every four homes, has so far sunk pounds 3.2bn into its network and plans to increase the rate of spending to pounds 400m this year. The losses are just as impressive - pounds 313m last year and pounds 135m in the first quarter of this year - while the break- even date has quietly been shunted to the right by another 12 months.

If investors are lucky, they may see a dividend in 2004. But who's counting? In fact, who cares? Telewest has yet to make a penny of profit but it is worth pounds 6bn on the stock market and rising. Cable & Wireless Communications is in a similar but even bigger boat, and it is valued at almost pounds 10bn.

The pace of progress is painfully slow. In the past three months, Telewest has signed on 53,000 more customers than have switched off. With three- quarters of its network built-out, it is entering just over a third of the homes it passes.

Salvation may be at hand and it comes in the guise of the digital television revolution which, in turn, has raised the pressure on the cable industry to consolidate. Cable operators have suffered from the lack of a strong brand image and a national presence. That looks like being addressed by a merger between Telewest and CWC with NTL, Britain's third cable player, joining the party and Microsoft playing matchmaker.

The key to making the marriage work is digital TV. BSkyB has a big headstart and even if the cable operators' subscriber forecasts are borne out, they will remain a long way behind. Telewest and CWC are counting on their superior broadband capacity to lure subscribers, coupled with the fact that since BSkyB is giving set top boxes away free it will cost nothing to desert. It is a big gamble, and an expensive one.

But that is nothing new for the cable guys.