US West sees control of cable company as key to taking on BT

American TV and phone operator strengthens link with UK's high- riding Cable & Wireless. Dawn Hayes reports

COLORADO-based US West Media group announced last week it may seek majority control of UK cable company Telewest. If the deal goes ahead, US West could with its British partner Cable & Wireless gain the critical mass necessary to compete against British Telecom, BSkyB and Vodafone as a new premier league player in the communications industry.

US West and Cable & Wireless are equal partners in One-2-One, a UK mobile phone network, and Cable & Wireless also owns the UK's biggest cable company. By combining forces, the two could emerge as a power on a par with BT and Rupert Murdoch in a market where digital technology is blurring the boundaries between mobile and fixed phone service and between phone and TV services.

At present, British Sky Broadcasting Group dominates the pay-TV market and BT and Vodafone dominate the phone market. All are positioning themselves for a slice of the emerging multimedia market to which they have each committed hundreds of millions of pounds. Cable & Wireless Communications alone has committed to invest pounds 1bn pounds per year for the next three years.

U West, which already owns 26.75 per cent of Telewest, is seeking to buy the two 10 per cent stakes of the UK cable company owned by SBC Communications and Cox Communications, both US communications companies, people familiar with the talks said.

A further 26.75 per cent of Telewest is owned by Tele-Communications International, the biggest US cable company and 10 per cent stake is held by Flextech Plc. The remainder of the shares are quoted.

US West is said to have offered to pay up to pounds 200m to raise its stake in Telewest to 47 per cent, valuing Telewest at pounds 1bn, pounds 100m short of its current market capitalisation.

US West wants to settle the uncertainty that has been hanging over Telewest since its attempts to merge with other UK cable companies failed. The ailing cable industry, backed mainly by US companies, is attempting to consolidate and cut costs after failing to meet original subscription targets.

UK cable companies are allowed to sell both TV and telephone services, a magnet for U.S. companies which in the 1980s were not allowed to sell both in the US. But the attempt to carve a substantial niche in the UK was overtaken by competition from bigger, established TV and telecommunications rivals.

Telewest depends on its biggest rival, British Sky Broadcasting, for TV programming. Telewest has lost a third of its market value in the last year as new TV customers fell by 39 per cent, new phone customers by 31 per cent, in part because BSkyB raised programme prices.

As its losses widened, Telewest cut its marketing costs and a quarter of its staff to save pounds 40 m. The problems are mounting. Yesterday, Telewest said it added 67 per cent fewer television customers and 33 per cent fewer telephone customers in the fourth quarter of 1997 than a year earlier.

US West plans to increase its focus on cable networks that carry integrated TV and telephone services, as one of two businesses it plans to stay in outside the U.S. The company will invest $400m to $600m a year in international cable and mobile phone ventures, Gary Ames, president of US West International, said recently. Half its investment so far has been made in the UK.

Copyright: IOS & Bloomberg

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