Warning hits C&W shares

SHARES IN Cable & Wireless slid yesterday as the telecoms group warned that profits would fall "significantly" this year because of a pounds 2bn investment in its global Internet and data networks and difficult trading conditions in Hong Kong.

Analysts were also disappointed that the strategic review carried out by C&W's new chief executive, Graham Wallace, had not led to a clear decision to quit the consumer market following its decision to sell the mobile phone operator One2One. C&W shares closed 40.5p down at 805p, a fall of 5 per cent, as dealers calculated that higher interest and depreciation charges and reduced earnings from HongKong Telecom, could slice 10-15 per cent off profits this year.

But shares in Cable & Wireless Communications, the UK cable operator in which C&W holds a 52 per cent stake, rose 4 per cent to 652p on reports that Bill Gates's Microsoft was considering taking a 30 per cent stake to add to the 29.9 per cent shareholding it is buying in the rival cable group Telewest.

Mr Wallace declined to comment on reports that he held talks about CWC with Microsoft's chief financial officer, Greg Maffei, on Tuesday.

Sources close to C&W said it was more likely that it would split CWC in two, retain its business and corporate customers and sell Microsoft a stake in CWC's consumer cable TV interests.

The pounds 2bn of extra investment over three years will include pounds 625m to build out C&W's European network and pounds 425m to expand its US Internet market and will take capital spending this year to pounds 3bn. Mr Wallace said C&W had decided against buying a US telecoms operator.

Pre-tax profits fell 17 per cent last year to pounds 1.8bn but underlying profits before one-off items, goodwill and amortisation remained steady at pounds 1.5bn.

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