Suddenly it's time to take the cable sector seriously

News Analysis: The cable industry has staged a remarkable comeback, leaving British Telecom and BSkyB looking warily over their shoulders

WHAT IS going on in the cable industry? Early last year, Britain counted more than 10 cable companies, each with heavy debt loads, poor service levels and - in the case of the ones with stock market listings - abysmal share price performances. Cable was a laughing stock, a black hole of an industry that had swallowed up cash but was never likely to offer its investors any kind of decent return.

A little over 12 months on, the picture has changed dramatically. Tuesday's pounds 1.4bn swoop by NTL, the aggressive US operator, on its smaller rivals ComTel and Diamond effectively reduces the number of players in the cable industry to three. Suddenly, cable is being talked of as a serious competitor to British Telecom and British Sky Broadcasting. And, for the first time in living memory, share prices are rising again.

NTL's acquisition is the latest in a string of deals in the sector. First off the mark was Cable & Wireless, which merged its Mercury long-distance operator with cable operators Nynex, Bell Cablemedia and Videotron to form Cable & Wireless Communications. That was followed by NTL's acquisition of rival operator Comcast for pounds 600m earlier this year. And then Telewest beat NTL in the battle to take control of General Cable with a pounds 649m bid.

The result is that the cable industry now consists of three companies, each with franchises covering large swathes of the country. NTL, the smallest, has over 5m homes under its control while CWC has more than 6m.

That said, cable operators still have a lot to prove. Since 1984, when the government first parcelled the country up into hundreds of small franchises and sold them off, more than pounds 7bn has been spent digging up roads and uprooting front gardens to bring cable to every home. Experts reckon it will cost at least another pounds 5bn to complete the job.

Operators have little to show for all that effort. Even though they have switched from providing just cable television - for which there was little appetite - to offering telephone lines as well, just one in five of the homes which have access to one or more of the services currently takes it.

This is partly for historical reasons. When cable was first introduced, operators only offered television on the assumption that it would enjoy the same success as it had in the US. Telephone lines were only added after 1991, when the Government opened up the domestic telephone market.

However, cable operators also have themselves to blame for their travails. In their drive to lay cable as quickly and cheaply as possible, serving the customer was often an afterthought. "This was an industry run by civil engineers and accountants," says one industry veteran. As a result, many people who connected to the service soon became disillusioned and switched off again.

Slowly the focus is changing. A new generation of managers have been brought in to raise service levels, and operators are also improving penetration levels by bundling together a telephone line with a basic package of cable television channels.

That combination has allowed NTL to increase penetration levels to around 40 per cent - roughly double the industry average.

"We started listening to our customers," boasts Barclay Knapp, NTL's chief executive. "We didn't try to cram more trashy American television down their throats."

Industry executives are even more bullish about the future. They argue that the UK cable network is, in effect, the information superhighway so beloved of New Labour. By laying fibre-optic cable, the cable companies are now able to offer high-speed access to the internet and interactive television, with all the related services such as home shopping and home banking.

This means that, for the first time, cable operators have an advantage over competitors such as British Sky Broadcasting, who do not have access to a fixed network when offering interactive services.

"Everybody is looking for the silver bullet that will drive penetration," says Richard Woollam, managing partner of the consultancy European Communications Network. "The fact is that cable is the perfect delivery mechanism for broadband services."

This does not mean that the cable industry is out of the woods, however. Analysts suggest that operators still have a lot to do attract business users, whose use of telephone lines is more intensive and therefore more profitable. They also argue that the number of cable companies may have to shrink even further to two or maybe even just one, in order to fully exploit the efficiencies of having a national network.

Nothing is likely to happen soon, however. All three cable companies still have to digest their most recent acquisitions. NTL and Telewest are also heavily burdened with debt which makes it hard for them to pursue further mergers.

Consolidation is also complicated by the companies' shareholding structures. Cable & Wireless, which has a controlling stake in CWC, would be reluctant to see its shareholding diluted if the company chose to issue shares. Meanwhile, Telewest's destiny is largely in the hands of its major shareholder, the telecom operator US West.

"There clearly is a logic for more consolidation but the real question is on whose terms it will take place. In our view it should be CWC's because of its much strong financial position," says Chris Godsmark, telecoms analyst at stockbroker Henderson Crosthwaite.

Nevertheless, the cable industry's return from the dead still amounts to a major achievement. The companies will now have to prove that, with the outlook more rosy than it has ever been before, they can finally start to make a return for their long-suffering investors.

News
Russell Brand was in typically combative form during his promotional interview with Newsnight's Evan Davis
peopleReports that Brand could stand for Mayor on an 'anti-politics' ticket
News
The clocks go forward an hour at 1am on Sunday 30 March
news
Arts and Entertainment
The Doctor finds himself in a forest version of London in Doctor Who episode 'In the Forest of the Night'
TVReview: Is the Doctor ever going stop frowning? Apparently not.
News
Voluminous silk drawers were worn by Queen Victoria
newsThe silk underwear is part of a growing trade in celebrity smalls
PROMOTED VIDEO
Sport
footballMatch report: Real fight back to ruin Argentinian's debut
News
Candidates with surnames that start with an A have an electoral advantage
newsVoters are biased towards names with letters near start of alphabet
Arts and Entertainment
Isis with Lord Grantham (Hugh Bonneville)
TV
Arts and Entertainment
Jay James
TVReview: Performances were stale and cheesier than a chunk of Blue Stilton left out for a month
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?