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Thursday, 2 May, 2002, 17:52 GMT 18:52 UK
Can cable deliver?
Fibre-optic cable
Cable offers high-speed connections

It has not been an edifying time recently for the UK's two cable giants.

Telewest announced it was laying off 1,500 workers to cut its huge debt burden.

Then NTL followed up by saying it would file for bankruptcy protection.

The figures are stark - NTL owes a staggering 12bn ($17bn) and is in the process of reducing its workforce from a high of 21,800 to 13,000.

Telewest has debts of 5.3bn and has seen its share price plummet 98%, from its high in the days before the tech bubble burst.

Big spending

In the face of it, it would seem that the companies who dug up your road to lay their cables appear to have thrown an awful lot of money down the holes they made.

The companies' problems stem from investing too heavily in expansion at a time when the prevailing theory was that no matter how much money you threw into technology, more would be thrown back.

There was a basic flaw in that theory - it was wrong.

Investing massively in laying cable networks and buying up cable companies gave NTL and Telewest an impressive infrastructure, but not enough income from users.

Laying cable: A costly business

Essentially, firms were left with thousands of miles of hi-tech, high speed cable, taking the companies' TV, telephone and internet service nowhere fast.

Adding to their troubles, the companies, were so convinced that returns on their investment would be swift and sure they ran up heavy debts to buy up rivals, rather than using equity which might have affected their share prices.

In the TV market, they took on battle-hardened Sky and, like its rivals in satellite before them, were left with a bloody nose.

They also suffered through buying up rivals so quickly, taking up disparate networks and trying to forge them into a homogeneous whole.

This meant that not all their local cable networks were the same - in NTL's case this left some customers able to access broadband internet, or video one channel while watching the other, while in another area - sometimes just down the road, customers could do neither.

Sound business

On the surface, two companies burdened by such massive debts might appear basket cases.

But NTL and Telewest could yet dig themselves out of their hole.

Take away the debts (and both companies no doubt wish someone would) and NTL and Telewest are both sound businesses.

Telewest has been buoyed by the relative success of its broadband internet service, and is winning more subscribers to its cable TV service.

NTL also has a decent, and growing, customer base and - importantly, seemingly understanding creditors.

Merger option

Last month, it agreed a deal with major bondholders to swap $10.6bn of debt for shares in the firm, and inject a further $500m into the firm.

The two companies, which operate in different franchise areas, could also merge, as some analysts think they will.

But the debt problems would almost certainly have to be addressed first before this happened.

Either way, the companies troubles do not signal the end of cable broadcast and telecoms in the UK.

The infrastructure they have laid down is a valuable asset, and one that is likely to increasingly realise its potential as the consumer is won over to interactive digital TV and high-speed internet.

See also:

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