Mercury seeks tie with cable firms

Mercury, Britain's second-biggest telephone operator, might step up competition with BT by forging cross-shareholder links with cable operators in advance of the widely-expected consolidation in the industry, writes Michael Harrison.

Peter Howell-Davies, Mercury's new chief executive, said yesterday that securing closer links with cable operators was one of the most pressing strategic issues to be addressed in the next 12 months.

Initially, Mercury is likely to focus on improving its commercial relationships with the cable industry, where it handles 80 per cent of all trunk and international call volumes. But this could be followed by equity stakes.

Mercury already has a 12.8 per cent stake in Bell CableMedia, which provides television and telephony services to 2 million franchised homes in London, Southampton, Leeds and north Yorkshire. Bell Canada, which owns the 20 per cent of Mercury not held by C&W, has a 46 per cent holding in Bell CableMedia. One possibility is for Mercury to take a majority stake in Bell CableMedia in return for C&W allowing Bell Canada to raise its stake in Mercury. Another possible cable partner for Mercury is Nynex.

Mr Howell-Davies, said: "It is a great disappointment that we haven't created a better relationship over the last eight years. The last thing we need now is for Mercury and the cable companies to be digging up streets in competition to put in local networks."

He said Mercury was pleased with what it had achieved in 1995 even though underlying growth in turnover had fallen to 6 per cent. He also forecast that it would take another pounds 20m out of its cost base this year.