Outlook: Cable madness

WHAT A splendidly medieval world of shifting alliances and betrayals is the telecoms industry right now. Scarcely a day goes past without news of some new alliance, breakup or takeover. It has yet to be demonstrated that any of this digitalised excess of corporate activity is capable of generating a profit, as opposed to simply digging up the roads, laying in the cable and servicing the customer. But with each mooted acquisition, the valuations ratchet up another notch or two. Where there's a deal there's a fee and as long as everyone keeps wanting to party, who's complaining?

The City was positively wetting itself with excitement yesterday at the news that Barclay Knapp, the ambitious young American who runs NTL, has enlisted the support of France Telecom in an attempt to buy himself a place in the latest round of consolidation in the UK cable industry. Cable & Wireless was planning to sell its domestic cable operation to Telewest, but it may now find itself in the pleasing position of having an auction on its hands.

But if Telewest is to be frozen out, how come its share price shot up 8.5 per cent yesterday? The theory goes that the cable company that loses will find itself sidelined and therefore likely to become tomorrow's lunch. Up go the valuations again. In a statement so astonishing it is almost laughable, France Telecom boasted that a couple of billion dollars was not a key issue for a company of its size. Try telling that to the average French telephone subscriber.

Meanwhile other big elephants are roaming too, searching for something to trample on. After deserting France Telecom for a brief fling with Telecom Italia, Deutsche Telekom is out and about in Britain looking for victims. How about Energis? The two are certainly talking.

Then there are the wild cards, Bill Gates with big stakes in both NTL and Telewest, and his co founder at Microsoft, Paul Allen, now out on his own looking for a cable acquisition in Europe. This is a high stakes game and there is only one certain outcome - someone is going to end up losing their shirt.

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