Mathew Horsman on the media

John, an American friend of mine, thought he might save money if he switched from BT to his local cable operator for his home telephone service. John rings New York, San Francisco and Boston on a regular basis, and didn't like the bulging bills BT was sending.

John lives in west London; his cable operator is Videotron. Videotron is a leading Canadian company that has made a big push into the UK since 1992, when the Government allowed cable firms to offer both television and telephony.

What followed was months of hell. The telephone line didn't work - he called the repair people. The first time they came, they interrupted not only the cable phone service but BT's as well. For more than a week, John was reduced to using the neighbour's phone. He then managed to get the BT line back, and decided (understandably) to forget about Videotron. Since then, he has received bill after bill, insisting he pay for his cable phone line.

This cautionary tale of the cable industry is, sadly, not unusual. The main players have proved adept at digging up streets, laying cable and raising money on the stock exchange. But on marketing and after-sales service ....

As a result, while most of the major companies holding franchises in the UK have built 40 per cent of their planned networks, they have only managed to sell the service to one in five potential customers, for a so-called "penetration rate" of just 20 per cent.

Compare that to US rates, where cable operators are only offering TV and not telephony. There, 60 per cent of those living in cabled neighbourhoods take up the service.

Granted, US penetration rates are helped by the poor reception of mainstream "through the air" TV signals. Also, network television isn't much good, while many viewers in Britain are apparently quite content with the "free" television (available for payment of the licence fee) from the BBC, ITV and Channel 4.

The industry does realise it has an image problem in the UK. The Cable Communications Association (CCA) has unveiled a pounds 12m marketing campaign to extol the virtues of cable, pointing out that phone calls are usually cheaper than BT's rates and that the movies, sport and entertainment channels bring huge choice into British homes.

Last week, the CCA lured Bob Frost, formerly of the Federation of Retail Newsagents, to the post of chief executive, to oversee the industry's public-relations. He takes up his duties in March, in time to start spending some of that pounds 12m.

So far, just over a million households have gone for cable, compared to around four million homes with satellite dishes. Cable's growth is far behind the level hoped for three years ago, when many media analysts predicted a boom.

Telephony has proved to be cable's prime selling point. For complicated reasons, the TV side of the business has been less attractive. Indeed, it is the thorny issue of programming that might at first preoccupy Frost.

Of the available channels on cable, virtually all are also broadcast on BSkyB. Moreover, it is Rupert Murdoch who owns the rights to most of the popular stuff on pay-TV - everything from Hollywood movies to major sport events such as the Ryder Cup and live Premier League football matches. BSkyB, the broadcaster owned 40 per cent by Mr Murdoch's News Corporation, makes its main programming available wholesale to the cable operators, on terms that many of them find onerous. They complain that they are forced into taking channels they don't want - like Sky Soap - under Sky's "bundled" discount scheme.

As a result, cable subscription prices tend to be higher than the amount charged by Sky, at least when viewers want to receive everything on offer, including the premium movie and sport channels. Yet cable subscribers only get a handful of services that Sky viewers don't: Live TV and SelecTV, for example, are "cable-exclusive" but have yet to find a large audience.

How BSkyB makes its programming available to cable is now under investigation by the Office of Fair Trading. A report is expected within six months. It is conceivable that the OFT will move against Sky's near-monopoly in pay-TV, although cynics believe that no anti-Murdoch action will be taken with a general election in sight. Who wants to run the risk of editorial sniping in the Sun and the Times?

The sad truth is that cable is likely to get little help from the regulator. The "rate card" that determines price and conditions of sale for wholesale programming could get tweaked, but an attack on Sky is a long shot indeed.

The answers are money and innovation. Cable will need to spend more securing its own programming supply and to develop services that Sky does not offer, interactive home shopping and direct banking, for example. Cable's two-way capabilities, and the fact that much of the network is fibre-optic, gives it an advantage that has yet to be fully explored.

Cable companies argue that they have already tried to develop their own programming, but Sky's dominance is so total as to render their efforts fruitless. They add that deals between Sky and the two largest operators, Telewest and Nynex Cablecomms, which between them control 40 per cent of all cable homes, have divided the industry. Working as an "industry" is thus impossible.

One way forward is for ITV and the "anti-Murdoch" part of the cable industry to join forces and bid for some big-ticket programming rights. Wresting control of the Premier League from Sky would be one method of improving cable's prospects.

Granted, that will take pots of money. But then, if Murdoch was willing to risk billions building up his business, why can't others?

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