Telewest, CWC Edge Toward Consolidation

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The British cable industry is apparently on the verge of
further consolidation, as the country's two largest MSOs confirmed last week that
they are in talks that could include "the transfer of various businesses."

The operators -- Telewest Communications plc and Cable and
Wireless Communications plc -- declined to elaborate, saying only that talks "are at
an extremely early stage."

The statement followed published reports that the two
companies were forming a plan that would see Telewest absorb CWC's residential
business, while CWC's corporate-user base would be folded into its parent, Cable
& Wireless plc.

Analysts and investors gave a thumbs-up to a potential
merger, which reportedly could see Telewest, with 1 million cable-TV customers and 1.57
million telephony customers, absorb part of CWC's base of 834,000 cable-TV
subscribers and 1.04 million telephony customers.

"Put together, it would be more than the sum of the
parts," said John Tysoe, who follows Telewest for SG Cowen Securities Corp. in
London.

Saeed Baradar, an analyst with Morgan Stanley Dean Witter
& Co., said a merged company could spread escalating marketing costs across a wider
operating base.

That would be important, he said, because Telewest's
franchise areas cover the country, and cable in general has a somewhat mediocre
reputation. What's more, marketing costs could escalate as digital cable rolls out in
the United Kingdom this year, he added.

A bigger company would also be a stronger competitor
against firms such as direct-to-home platform British Sky Broadcasting Group plc and telco
British Telecommunications plc.

Baradar, for one, said the United Kingdom could eventually
end up with just one MSO. "If there's one satellite platform, why can't
there be one cable operator?" he asked.

NTL Inc., Britain's No. 3 MSO, didn't return
phone calls seeking comment.

The talks also bring into question what MediaOne Group Inc.
and AT&T Corp. will do with their stakes in Telewest. MediaOne owns 29.99 percent of
the MSO, while AT&T, through Liberty Media International, owns 21.7 percent.

Analysts see AT&T as a likely seller, and Baradar said
the company has indicated that it doesn't have a long-term interest in U.K. cable.

At the same time, AT&T recently received European Union
approval for a global telephony-services joint venture with BT on the condition that it
create "greater structural separation" between itself and Telewest.

Tysoe said AT&T would likely sell because it
wouldn't want to hold a stake in one of BT's bigger competitors.

A Liberty spokeswoman declined to comment on what the
company will do, but she said it believes that there is already sufficient separation
because Liberty is independently managed.

Analysts value MediaOne's international assets at more
than $10 billion, while Tysoe said the company's stake in Telewest is worth about
$3.1 billion. Last month, MediaOne agreed to be bought by Comcast Corp. for $60 billion.
And while it's expected to unload the international cellular properties, its future
with Telewest is less clear.

Most analysts doubt that MediaOne will sell its stake, even
though Comcast sold its much smaller U.K. cable properties last year. Some analysts said
MediaOne/Comcast could move to increase its stake in Telewest.

"Comcast has the propensity to be able to get deals
done. I think that they're interested in achieving scale," said Lou Kerner, an
analyst with Goldman Sachs & Co., adding that the companies haven't stated what
they plan to do.

At the same time, under U.K. regulation, if a company moves
to acquire more than 30 percent of another, it must offer to buy all of the company at the
same price, said Aryeh Bourkoff, an analyst with CIBC Oppenheimer Corp.

Analysts consider it much more likely that MediaOne will
sell other international broadband properties, almost all of which are not publicly
traded.

United Pan-Europe Communications N.V. (UPC), which owns 50
percent of Dutch cable operator A2000, has long expressed its interest in owning
MediaOne's half of that company.

In an interview earlier this year, MediaOne International
president and CEO Gary Ames said A2000 was "dead on target with MediaOne's
strategy." But last week, a MediaOne International spokesman declined to comment on
the possibility of selling its stake in the operator.

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