News of the job cuts is expected to be given to Telewest's 5,500 staff this morning, with the company due to announce results for the first six months of the year this afternoon. The review was launched in June, following a steady fall in Telewest's share price on concern about the continuing costs of its huge investment programme.
While investors may view the job cuts as a positive move to contain costs, they are likely to be disappointed because the company will decline to divulge further details of the recently revealed merger discussions following an approach from Barclay Knapp, chief executive of NTL.
The group's share price has almost halved since this time last year, when it stood at 140p. Telewest shares have risen this week on reports of the merger and were unchanged yesterday at 82.5p.
Directors will tell investors today that Telewest's investment spending is to be slowed down, with more funds injected into marketing. Last year investment on its cable network rose by 31 per cent to pounds 515.6m, with 65 per cent of its construction programme completed across seven franchises.
Industry sources suggested the review was part of the transition from Telewest's construction phases, which began in the early 1990s, to a more customer-orientated sales-led approach. The industry as a whole has been frequently criticised for doing too little to exploit marketing opportunities from networks so far completed.
Analysts yesterday pointed to another reason for the cuts, as Telewest faced increased borrowing costs following the recent rises in UK interest rates. Last year the group arranged a complex debt package with a syndicate of banks which related the amount it could borrow partly to its operating performance.
The interest rate paid on the loans, of up to 2.25 per cent more than short-term money market rates, is higher than for many companies. Last year Telewest's losses rose from pounds 114.7m to pounds 249.9m, though excluding its huge interest and depreciation it broke even for the first time. Analysts said the cost cutting would enable the company to improve its finances and borrow more.
Telewest is not expected to make any further comments today about its preliminary talks with NTL, the US cable company, which would create a rival to the current number one in the industry, Cable & Wireless Communications (CWC). Sources suggested that NTL's decision to leak details of the talks to the press had been "premature", given the complex nature of any future negotiations.
It is thought the discussions, driven by Mr Knapp, may only come to fruition a year or more down the road, if indeed the companies manage to reach agreement. There is still some doubt as to who is involved in the talks, with uncertainty focusing on whether United News & Media, Lord Hollick's newspapers to television empire, will lend its support.
Telewest's silence on the merger will come as a blow to the company's credibility. It has been under pressure to push forward consolidation since CWC's four-way merger was completed in April. Two months ago, Telewest was the subject of merger speculation and was forced to play down comments by the company's chairman, Fred Vierra, that he could not rule out a merger with CWC.Reuse content