Hard-bitten NTL struggles to survive

NTL bundled cable TV with cheap phone services

By Emma Clark BBC News Online business reporter

He is charming, bright and known for his boyish good looks.

During the telecom heyday of 1998-2000, he set the cable world alight with a stream of ambitious acquisitions.

Knapp charmed investors with his vision for NTL

Now he is fighting to save his company from bankruptcy - and has been forced to sell his Gulf stream jet.

He is Barclay Knapp, the 44-year old chief executive of cable company, NTL, which is in the middle of painstaking negotiations to restructure £12bn of debt.

Strip away all the money that NTL owes the bank, and it is an attractive company with a promising future supplying cable TV and broadband internet to the British masses.

If only life was so simple. The use of debt to acquire more than 12 companies during the past few years, has left NTL struggling to pay back just the interest.

It's got the potential...

"It is a good fundamental business model," says Helen Rodriguez, head of European high-yield research at Deutsche Bank.

Facts & Figures

1993: CableTel founded by Barclay Knapp & George Blumenthal

1996: adopts NTL as name

1999: acquires Cable & Wireless Communications

2001: hits target for 100,000 broadband customers

2002: appoints advisors in Feb to help restructure debt

"The revenue model is proven and it works. But NTL needs to find a way of getting its costs and its balance sheet in line."

NTL makes its money by bundling cable TV, cheap telephone services and internet access.

Currently, it is the market leader in high-speed UK internet access, serving 180,000 customers.

However, progress has been hamstrung by a mish-mash of cable networks, hobbled together through a series of acquisitions.

Telecom start-up

NTL emerged from humble beginnings. In 1993, Mr Knapp and NTL's current chairman George Blumenthal set up a company called International CableTel, with an investment of $25m.

In 1996, the company changed its name to NTL after acquiring National Transcommunications Limited, the network of television transmitter masts that power ITV, Channel 4 and Channel 5.

Within seven years of setting up, the company was worth $12.5bn, as it rode high on the froth of the dot.com wave.

It seemed eager to challenge the dominance of satellite giant BSkyB, even attempting to take over football club Newcastle United, after Rupert Murdoch bid for Manchester United.

A trail of debt

At the time, running up massive debts to buy companies - rather than using its equity - seemed a good idea because it left the company's share price largely unaffected.

But its aggressive strategy has come back to haunt it - NTL lost its main listing in New York last week after the company's share price sank to 20 cents.

At their height, the shares peaked at $100, and were still worth nearly $40 as recently as last year.

Other achievements that have since turned sour include buying Cable & Wireless Communications in 1999 for more than £8bn.

At the time, it whipped C&W from under the nose of cable rival Telewest, but now the purchase seems grossly overpriced.

In its last set of company results on 27 March, NTL reported an £8bn write-down of exceptional charges, assets and goodwill.

The company's strategy was again knocked off course when it was unable to sell its transmission business to slash its debt pile.

At the bargaining table

With its debt level now reaching crisis-point, the company's bondholders hold the trump cards.

They are negotiating to swap more than half of the company's debt into equity, which would turn them from creditors into company owners.

If it can sort out the balance sheet, it will be in a good position to compete with BSkyB

Morten Andersen
Deutsche Bank

"It is very complex," says a trader at Merrill Lynch.

"There are multiple classes of debt which means there many people at the bargaining table."

Any debt-for-equity swap would effectively wipe out the value of the company's existing shares.

However, Morten Andersen, a new media analyst at Deutsche Bank, says there could be some hope for shareholders if the company pulls through.

"The debt-for-equity swap will mean they have a minute shareholding, but in the future there could be value in that."

Faded visions

Mr Knapp has come in for some heavy criticism for his part in the saga, but for the time being has managed to hold onto its job.

He may no longer be the internet visionary, but he has been given some credit for cutting costs, including thousands of job losses in the past year.

The company is also working hard to improve customer service after being dogged with complaints.

But the company's future also rests on new investment. It is understood to be talking to John Malone's Liberty Media and AOL Time Warner about possible injections of capital.

Long-term survival?

If you ask the analysts, most agree that NTL will survive in some form.

"Will there be a cable company in the UK in five years' time?" asks Ms Rodriguez.

"Absolutely. Will it be called NTL? I don't know. But a solution will be found."

Her colleague, Mr Andersen is also optimistic.

"If it can sort out the balance sheet, it will be in a good position to compete with BSkyB."

It is possible that the flamboyant Mr Knapp still harbours ambitions to knock Mr Murdoch off his throne.

If current negotiations go to plan, he may get a second chance - a rare thing in the turbulent world of telecom has-beens.