London -- The United Kingdom's three MSO giants are
closer than ever to taking their long-awaited merger plans to the next level.
Last Thursday, NTL Inc. confirmed that it is in discussions
with Cable & Wireless Communications plc "about a possible transaction in which
certain assets of [CWC] would be merged with NTL."
That deal's pathway is being smoothed by a pending
agreement that would give NTL ample funding from France Telecom.
The end result could see France Telecom pony up around $5
billion, which, when combined with NTL paper, would give NTL $8 billion to take control of
CWC's 1.2 million-home cable-TV and residential-telephony assets.
Sources said CWC wants to hold onto its cable-based
business-telephony connections. Those assets would be acquired by its parent company,
Cable & Wireless plc, which would roll them into Mercury Personal Communications Ltd.,
its U.K. long-distance company.
CWC's share price surged on the rumors last week.
Investec Henderson Crosthwaite telephony analyst Chris
Godsmark said, "Our view is that [the merger between CWC and NTL] is going to happen
sooner, rather than later."
Even after buying Comcast Corp.'s U.K. assets and
Diamond Cable Communications plc last year, NTL is the smallest of the U.K.'s three
MSOs, with 3.5 million homes passed. A successful bid would be a major coup for CEO
NTL does have the highest penetration rates (27.9 percent)
and the lowest churn levels in U.K. cable.
And a CWC insider viewed the NTL bid as "very good for
the industry. What you get with this merger is the marketing clout of NTL with our very
considerable technical clout. We are ahead of them in terms of interactive services -- we
have stronger partners. But put us together and you have a very potent weapon."
Other scenarios could emerge. The third large U.K. MSO,
Telewest Communications plc -- backed by AT&T Corp.'s Liberty Media International
and Microsoft Corp. -- has been expected to close a similar deal for much of the past
year. Back in April, CWC and Telewest confirmed that they were talking.
On May 21, Telewest consolidated its main bank debt and, in
the process, secured a new consolidated credit facility of £1.5 billion ($2.4 billion).
The London market is also talking about Telewest currently seeking another £1 billion
worth of funding, so an 11th-hour rival bid for CWC is not being ruled out.
If NTL buys CWC, there is still room for Telewest to play.
Microsoft owns 29.9 percent of Telewest and 5 percent of NTL. The opportunity for
Microsoft to play a similar role in Britain as it has done with its U.S. cable assets is