Telewest charges to carry channels

Telewest Communications is to charge TV broadcasters for using its cable network. Cathy Newman reports on the latest initiative by the ailing cable industry.
Telewest, the second-largest UK cable company, said yesterday it had agreed to carry an un-named analogue cable channel in return for a seven-figure sum. The decision is unprecedented for cable companies, which pay programmers such as BSkyB to carry channels.

A spokesman for Telewest said: "The formula for negotiations with channel providers is changing. Whereas in the past, analogue capacity was freely available, and cable companies were seeking new content, analogue capacity is now at a premium, and many more channels are available."

Telewest's network carries around 50 analogue channels. The company's spokesman said yesterday there was "precious little" spare capacity left.

He said the company was discussing the proposals with other channel providers. Theoretically, BSkyB could be forced to pay Telewest to carry its channels in the future, but the negotiations at this stage are thought to focus on new channels and those hoping to renew carriage contracts with the cable company. Smaller niche-orientated channels are likely to be hardest hit by Telewest's change of strategy.

Cable companies such as Telewest have attacked the high fees charged by BSkyB and other programmers, which have consistently eroded margins. In the first half of the year, Telewest's gross margin on cable television dropped to 39.3 per cent and the company has been forced to cut costs.

Last month, Telewest, which serves almost 600,000 of the 2 million cable television homes in the UK, announced plans to slash 1,400 jobs in a restructuring designed to cut costs by 20 per cent a year.

The cable company's decision to charge channels for carriage is the latest initiative adopted by its chief executive, Stephen Davidson, in the battle to squeeze more value out of its programme providers.Last month, the company refused to carry Sky's National Geographic Channel and dropped Sky News in areas where it was not contractually obliged to take the service. Sky News will, in these regions, be replaced by the BBC's 24- hour news service.

However, the cable industry has been fragmented in its opposition to BSkyB. Cable & Wireless Communications, the largest cable group, broke ranks with the rest of the industry almost a month ago when reports surfaced that it had agreed to use the satellite broadcaster as its exclusive pay- per-view supplier. Although no announcement has yet been made, news of the negotiations undermined attempts by a consortium of other cable companies to form their own pay-per-view venture.