NTL, the UK's smallest cable operator, has confirmed that it is in "advanced discussions" over a bid for certain assets of CWC. Such a deal could scupper the previously announced deal between CWC and Telewest, the UK's second-largest cable operator.

It is now being backed by the financial muscle of France Telecom, which said it is keen to take on BT, BSkyB and the UK mobile phone operators.

CWC said it had spoken with NTL, but was still talking to Telewest as well.

Neil McCartney of FT Telecom Markets thinks the cable industry will shrink down to one company

In a statement the company said the various discussions were continuing "and may or may not lead to a transaction".

Meanwhile France Telecom has confirmed that it has bought a 10% stake in NTL, to get in place for consolidation of the cable operating sector in the UK.

The French company's move gives NTL a much-desired cash injection worth $1bn (£625m).

Sales force

France Telecom said it was ready to make further large investments if NTL succeeded in buying CWC's cable activities.

France Telecom's finance director Jean-Louis Vinciguerra said that in the event of NTL successfully taking on CWC's cable operations "we would become the main shareholder of the new entity".

"This would be an alternative operator to the historic operator BT and to the pay channel BSkyB in the fields of pay television, internet services, advertising and electronic commerce."

Mr Vinciguerra did not say how much France Telecom was prepared to invest if NTL created a new entity but said that reports of a figure of $4bn were not absurd.

If NTL buys CWC, the UK consumer cable business of Cable and Wireless, it would double in size and would have access to 11.5 million homes, half the UK market.

Mr Vinciguerra said Microsoft was not hostile to consolidation of the British cable sector and he did not rule out the possibility of a three-way alliance.

Mr Vinciguera said that the new entity would be well placed to obtain a licence for mobile telephones operating to the third-generation standard UMTS offering access to the internet and multimedia services from portable telephones.

Cable & Wireless, which owns a controlling stake in Cable & Wireless Communications, is keen for a quick sale of its assets after the failure of its auction for One-2-One, the mobile phone operator in which it owns a 50% stake.

Cable & Wireless plans to concentrate on offering telecoms services to businesses rather than consumers.

The news of NTL's and France Telecom's interest in the residential cable business has provided a boost to shares in both CWC and Cable & Wireless.

Digital pressures

NTL has played a leading role in the development of the UK cable industry, introducing services such as combined telephony and television services.

But the introduction of new digital services such as digital television and high-speed Internet connections has put pressure on the cable sector, which lags behind satellite rivals like BSkyB.

The inclusion of France Telecom would add financial firepower to NTL's bid. In return, the company would be likely to receive boardroom seats in the new company, helping it expand its European reach after the collapse of its alliance with Deutsche Telecom.