Telewest looks to mobile phones for expansion

Telewest, the UK's largest cable operator, is exploring ways of expanding its recently formed partnership with the pounds 5bn merged cable group planned by Cable & Wireless into mobile telephony in a move which could cut across alliances in the industry.

The discussions, which are understood to be at an early stage, are also thought to have taken place with all four mobile networks aimed at launching a mobile phone product which the two cable groups could market together as the distinction between fixed and mobile phones becomes increasingly blurred.

The talks are sensitive: C&W already partners one of Telewest's main shareholders, the American phone group US West, in One 2 One, the fourth- largest mobile company.

C&W has already pledged to include mobile telephony in its new cable company, C&W Communications (CWC), formed out of the merger of its Mercury subsidiary with two cable operators, Nynex CableComms and Bell Cablemedia. So far C&W has kept investors guessing about whether One 2 One would be brought into the company. However the latest talks suggest both CWC and Telewest may choose to work with a rival mobile company instead, with the possibility that Orange may emerge as the preferred candidate. A source close to the two partners explained: "It has to be the best product. One 2 One would have to demonstrate that it fulfils that role."

The collaboration between Telewest and CWC already involves a digital cable television service, due to be launched towards the end of this year. They have already leapfrogged plans by BSkyB for a digital satellite channel by announcing the first firm hardware contract with a US electronics group to make the set-top boxes which will enable viewers to access more than 100 channels.

Stephen Davidson, Telewest's chief executive, declined to give details of the latest exploratory talks, but said: "We are looking at a raft of individual matters on which it makes sense to co-operate. It provides a platform for a more cohesive approach which has sometimes been lacking in the cable industry in the past."

Telewest yesterday revealed a 52 per cent rise in revenues last year to pounds 290.3m and disclosed that it broke even for the first time in 1996 before including the heavy depreciation and interest costs associated with building the network.

Investment during 1996 was pounds 515.6m, taking the total outlay so far to pounds 1.7bn with 65 per cent of the network built. Mr Davidson predicted Telewest would spend a similar amount this year.

The extra spending pushed overall pre-tax losses to pounds 249.9m, compared with pounds 114.7m in 1995.