C&W's money to burn

Wallace: Why would he want to help out BT?

By the BBC's Rory Cellan-Jones

It is a problem just about everyone else in the telecoms industry would love to have.

But Cable & Wireless's huge cash mountain is proving something of a headache for its chief executive Graham Wallace.

In the two years since Mr Wallace took over at the helm, Cable & Wireless has been slimmed down and set on a new, more focused course.

While its rivals were off on a spending spree, this company was selling assets around the world - from Hong Kong, to Australia, to its British domestic cable TV services.

It has been part of a decision to transform itself into a company focusing principally on business customers, while at the same uniting its voice, data and internet services on a single network.

The result - by the summer, Cable & Wireless is expected to have about £6bn sloshing around its balance sheet.

Increasing pressure

But as the likes of BT struggle to reduce their crippling debts, the market has been asking just what the other big name in Britain's telecommunications industry plans to do with all that money.

There has been increasing pressure on Mr Wallace either to return money to shareholders or to prove that he can strengthen Cable & Wireless by making acquisitions.

This week Mr Wallace did spend a little of the cash pile on an American internet services group Digital Island.

But the £250m purchase price meant this was pretty small beer - after all, BT spent 20 times as much on its British third-generation mobile phone licence last year.

Bizarre

Mr Wallace faces a difficult choice. He has to prove to his shareholders that their money would be better spent buying telecoms assets at a time when the industry is in crisis rather than putting it into their bank accounts where it can safely earn a little interest.

Institutional investors have been pressing him to act quickly. Some even seem to feel that cash from Cable & Wireless would be handy at a time when BT is asking investors to put nearly £6bn pounds into its rights issue.

To ask one prudent telecoms firm to help prop up its profligate rival seems particularly bizarre.

More US purchases

But Cable & Wireless, which realised 18 months ago that it could not afford to compete in every area of its industry, is determined to continue with its more focused approach.

That may mean more purchases in the United States as it builds a global presence in the business networks of the future.

In the meantime the company faces plenty of turbulence. Even if it has not splashed out fanciful sums on mobile phone licences - one area from which it has now withdrawn - it is still suffering from the economic slowdown as business customers trim their investments.

But if it spends its money wisely, Cable & Wireless could emerge from the crisis afflicting its industry in a much stronger position.