Telewest sees tide turning in cable's favour despite pounds 53m loss

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The Independent Online
Telewest, the country's largest cable operator, believes the market has finally turned for the beleaguered industry, its finance director said yesterday.

Unveiling first-quarter losses of pounds 53.1m, on revenues of pounds 65.2m, in line with forecasts, Stephen Davidson predicted a smoother ride as the industry builds out the rest of its pounds 10bn network and gears up marketing plans to sell the virtues of cable telephony and television.

"The tide is generally turning our way, although 1995 was obviously a difficult year," Mr Davidson said.

The first-quarter losses, consistent with this stage of the network build- out, are similar to those announced this month by two other publicly quoted cable operators, Nynex CableComms and Bell Cablemedia.

More importantly for future prospects, the industry's "churn" (the rate at which subscribers subsequently disconnect) looks like moderating after several quarters of disappointing performance. In Telewest's case, high churn of a whopping 57.3 per cent in the first quarter of last year is down to a still high but more manageable 42.2 per cent, and the company's own forecasts suggest they are trending down.

The other key indicator of performance, penetration rates, has shown less movement at Telewest, hovering at just over 20 per cent. Mr Davidson conceded that more marketing efforts would be needed to increase the take- up rates for cable to the 40 per cent level desired by sector analysts.

Telewest's network is 55 per cent built, and construction has been on budget. The company's cable passes 2.1 million homes.

Cable has been a disappointing investment since the main publicly quoted companies came to market starting in late 1994. Telewest, the first and largest of the listed companies, has traded below its issue price for most of the last 18 months. It closed last night at 170p, up 3p. Shares in the main companies took a beating in 1995, buffeted by bad news and lingering perceptions that the industry was still being mismanaged. The high-profile "deal" between the Labour Party and BT over the building of the information highway was one destabilising factor, although the Opposition has since said that cable, too, would be encouraged to play a leading role in the development of the highway.

Rate-capping of BT by the telecoms operator, Oftel, would also jeopardise cable's plans to undercut the dominate operator in the telephony sector, by as much as 25 per cent.

Telewest's shares were also affected by the decision earlier this year by the Office of Fair Trading to investigate aspects of the pay-TV market in the UK. Telewest and Nynex have both signed agreements with BSkyB to secure long-term supply of pay-TV programming, and do not generally support intervention by regulators.