Outlook: Wallace puts his job on the line with Global profits promise

Equity markets; Gloom-ridden ITV

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Bank opens the door to cut in interest rates

C&W shares dip to 1980s level after warning

Most telecoms executives must consider themselves to be part of the finger nails club – as in hanging on by their finger nails – but perhaps none more so than Graham Wallace, chief executive of Cable & Wireless, whose share price yesterday sunk to its lowest level since the mid-1980s. Mr Wallace seems to have done most of the right things strategically since he succeeded Dick Brown three years ago, but he's been overtaken by the telecoms bust and so far there's little to show for his work in rebuilding C&W in his own image.

Mr Wallace quickly realised that the old model of trying to be an all singing all dancing telecoms company in every country he operated in, taking in mobile telephony as well as consumer and business fixed line access, just wasn't going to work, and he set about focusing C&W on global, business to business telephony based on low cost IP technology. It was a bold approach that involved selling what had previously been core C&W assets – Hongkong Telecom, One2One and the UK cable business. The City none the less bought the strategy and the shares rose. He also got some excellent top of the market prices for his disposals.

So what went wrong? In a nutshell, the collapse in the price of bandwidth. Despite all Mr Wallace's efforts, C&W is today worth no more than the value of its £2.5bn cash pile, together with its tradable securities and remaining regional telecom businesses. The market attributes a negative value to the business Mr Wallace has poured all his money and efforts into, C&W Global, and it continues to lose money hand over fist. Yesterday Mr Wallace recommitted himself to the target of making this business cash flow positive by the first quarter of calender 2004. He's nailed his colours to the mast, and if he fails, he'll undoubtedly lose his job.

On the other hand, he doesn't have a lot of choice. According to the pre-close trading update issued yesterday, Global is continuing to fall short of the revenue targets it set for itself. Cash outflow is falling as planned, but only because the company is making up for the lost revenue with ever more draconian cuts in costs and capital spending. In the meantime, the cash mountain continues to dwindle. Mr Wallace reckons it will take him another £400m before he brings Global under control. Investors must wonder whether he ever will.

There's a new chairman and finance director at C&W, who have presumably both satisfied themselves that the target is a realistic one. Even so, it will be a long and nerve wracking wait to find out.

There's no reason why Global shouldn't work. So many of its competitors have now withdrawn from the market that it is sometimes hard to understand why it isn't already. If there is an explanation it is perhaps that C&W has lacked the aggression, urgency and management in depth to make it come right. C&W's fault has been not so much in the strategy as the execution. The shares have meanwhile sunk so low that they would surely fall victim to a private equity bid were it not for the fact that C&W is still too large a bite for the vulture capitalists easily to digest. Few venture capital groups would have the equity, or in these markets borrowing power, to write such a big cheque.

Equity markets

The Monetary Policy Committee is at a loss to understand why equity markets are still falling, or so it says in the minutes published yesterday of its last meeting. It seems almost impertinent to offer any form of assistance to such a star-studded assembly of economists and policy makers, but here goes anyway. It's called Iraq and it's called corporate profits.

Dealing with the second explanation first, there is still no sign at all of the sharp rebound in corporate earnings which was by now meant to be sweeping through the stock market. Nor is there yet any shortening in the queue of companies seeking to recapitalise themselves and rebuild balance sheets. Unexpected new additions keep popping up all the time. As for Iraq, it is not just the uncertainty that is unsettling markets, but the prospect of a sharp oil price spike when the invasion begins.

A betting man would still put money on that happening in December or January, not withstanding the progress being made at the United Nations. In such circumstances, the correct policy response will be to raise interest rates, possibly quite sharply depending on the extent of the rise in oil prices, to choke off the inflationary pressures. According to the minutes, the MPC quite seriously discussed a further interest rate cut at the last meeting, this on the basis that equity markets remained weak and the recovery in the world economy was proving slower than anticipated. The minutes venture the ingenious argument that since everyone had thought interest rates would be rising by now, the fact that they are not in itself amounts to an easing in policy. Only an economist could come up with that one.

In any case, war against Iraq will play havoc with all these calculations, particularly if it spreads out into a broader regional conflict. Stock markets and the world economy will go into a fresh nose dive at a time when the oil price is rising strongly. A central banker's nightmare, in other words.

Gloom-ridden ITV

Few people outside the advertising industry and the City take much notice of the stream of viewing figures that emerges daily from the Broadcasters Audience Research Board, but if they did they would find some disturbing trends. In the six months between January and July, ITV's share of viewing among the key 16 to 34 year old age bracket fell by a staggering 22.1 per cent compared with a year earlier.

We all know that caught between multichannel TV and a resurgent BBC, ITV's audience share as a whole is in decline. Even the most brilliant of programmers would have been hard pressed to halt it. But judging by these figures, its share of the youth market is falling off a cliff. Young people watch less TV than older ones, but eventually they will be the older viewers and if they are switching from ITV in growing numbers, the long-term consequences for ITV look little short of calamitous.

OK, so maybe things aren't as bad as they seem. In the US the growth of multichannel TV has seen the audience share of the big networks slump from 80 to 50 per cent, but their share of the advertising cake has risen because they remain the only true mass market medium. Everything else is niche.

This, however, is a slender reed to cling to. The British market is structurally quite different, and the free-to-air competition to ITV is growing fiercer by the day. Belatedly, ITV has seen its peril, and started investing more in programming. Now cut free from the yoke of ITV Digital, there's a record programming budget for next year, and though you might think Get me out of here, I'm a Celebrity quite the most tacky thing ever to have graced the small screen, it does demonstrate that ITV can still produce some of the best popular entertainment around.

Even so, ITV's senior executives continue to demonstrate a quite breathtaking lack of savvy. Their very public bid for Dawn Airey, chief executive of Channel 5, has been allowed to assume the proportions of a make or break hire. If, as is only too likely, her present employer holds her to nine months of gardening leave, it is going to be a deal breaker and another public relations disaster for ITV. While ITV has been attempting to persuade government and regulators to allow yet more consolidation, its core franchise has been going to hell in a handcart. Investors can only pray it is not too late to arrest it.

jeremy.warner@independent.co.uk