Cable up

The industry's latest merger is likely to bring an exciting increase in consumer choice as well as lower charges. By Chris Godsmark

When four media companies get together in a deal worth pounds 5bn you would expect some hyperbole from those involved. Last week's merger between Cable & Wireless, Bell Cablemedia, Nynex CableComms and Videotron did not disappoint.

Dick Brown, Cable & Wireless's new chief executive, called the deal "a tremendous breakthrough" for consumers. Aiming his comments at BT and BSkyB, which dominate the UK telecoms and pay-TV business, Mr Brown said that his newly created empire, Cable & Wireless Communications, would be "the only company in the UK capable of offering a combination of telecoms, broadband data transmission, video shopping and Internet access".

For once, such extravagant claims may be justified. Take BT's reaction, which changed as the day progressed. BT's slick press desk began by describing the merger as just another step in the inevitable consolidation of the cable industry. By the afternoon BT had accepted that the deal was more significant, but argued that a stiffer dose of competition was only to be expected, and welcomed.

In fact, the merger is probably the most important thing to hit the cable and telecoms industries since the whole market was thrown open to competition in 1991. Since then a quiet revolution has taken place. Across the UK towns and cities have been "cabled up", largely with the backing of US and Canadian cable operators, through an investment programme estimated at about pounds 6bn so far.

Yet the quality of services and the professionalism of the marketing have not kept pace with the raw investment. This was hardly surprising, as most of the companies involved were using the UK, the world's most deregulated telecoms market, as a test-bed for even more ambitious expansion nearer home. The disappointing result has been that the cable operators have been able to persuade less than a third of potential customers to take out either their TV or their telephone services. A large number also decided not to renew their subscriptions.

As time went on the apparent inability of the cable operators to get their act together had become a source of growing frustration to the regulator, Don Cruickshank, from the watchdog body Oftel. "Competition is a contact sport: the opposition fights back; the game moves on," he told executives in a recent speech.

A letter from one disgruntled customer landed on The Independent's desk this week. William Mackenzie from London took out a contract to have Videotron's cable service installed to his front door on 3 September. A week later, the day before the engineers were due to arrive, he was told there would be a delay of a month. It is now late October and he is still waiting: "I find it extraordinary that Videotron has continually told me that the delay in installation was one month when in fact it seems to be for an indefinite period."

Worse still, the cable operators' attempts to market services together as a single brand have been criticised as particularly inept. A bizarre pounds 12m advertising campaign earlier this year, featuring Dawn French, made the elementary marketing error of not explaining exactly what the product was, assuming consumers already knew. Plainly, they didn't. All too often customers have been offered a plethora of underfunded offers which barely compete with BT's massive marketing effort, backed by an advertising budget this year which could reach pounds 180m.

So where does the Cable & Wireless merger fit in? By merging four large cable operators (leaving the very biggest, Telewest, conspicuously on its own) it will provide a unified service to a potential 6 million homes. Consumers should see two big changes.

First, the telephone service will be operated by Mercury, which will get direct access to homes for the first time. Gone will be the days of a separate Mercury button on the handset, two sets of bills and a limited range of services. We should expect to see new billing procedures and pricing packages. The fixed phone line operators are only just catching on to innovations pioneered by Orange in mobile phones.

The deal could also bring reductions in pay-TV charges because the merged company will have greater negotiating clout. Anything that loosens the grip of BSkyB will be welcomed by many in the industry.

After the election BT will no doubt step up its long campaign to be allowed to run broadcast entertainment down its local phone network. Currently the ban is not due to be completely reviewed until 2001, with no guarantees that it will be lifted. It was bitterly ironic that on the same day as the merger, Don Cruickshank ordered the company to stop offering its Family and Friends customers savings on BSkyB services.

Cable & Wireless Communications aims to be operational by next April. For once, BT and BSkyB have more to fear than just the industry regulator.