Hull's £2bn bonus

Hull's white phone boxes have spawned a high-tech business

By business correspondent Rory Cellan-Jones

A year ago Kingston Communications was still the only council-run telephone service in Britain. Now it is entering the FTSE 100 index of leading shares and its former owners Hull City Council are sitting on a windfall of more than £2bn.

Shares in Kingston Communications have risen sixfold since the Council decided to sell more than half the company last July . But having held on to 45%, the local authority is sharing in Kingston's success.

Share bonanza

And it's not just the council which is benefiting. Some 51,000 Hull residents - customers of Kingston Communications - took up the chance to invest in the company last July, and all but 7,000 still have them. Those who invested the maximum £5,000 have seen the value of their shares rise beyond £30,000.

Councillor Patrick Doyle is not among the lucky ones.

As the leader of Hull City Council he was barred from investing. But he and his colleagues now have to decide what the council should do with its new found wealth.

Windfall

Already some of the £245m raised from the sale of its majority stake has been earmarked for improvements to schools and housing and for a new stadium for Hull's rugby league and football teams.

But Cllr Doyle knows he has to be careful about what he says about the rest of the council's Kingston shares. Last month a report - quickly denied - that the council was planning to sell up, sent the share price tumbling.

Mr Doyle also bridles at the suggestion that this is a windfall. "Kingston is benefiting from the investment and the careful stewardship the council put in over the years."

Innovation

Kingston does indeed have a good record for innovation. The municipal telephone company with it trademark white telephone boxes introduced the UK's first completely digital network - and throughout its history it has been proud of its ability to move more quickly than BT.

But the extraordinary rise in its share price since last summer's flotation owes much to the stockmarket's current obsession with all things high-tech.

Kingston has become much more than a telephone company.

Interactive TV

Kingston Interactive Television now offers what it claims is the world's first commercial service offering digital television down the telephone line.

It is using the new ADSL technology to allow customers to view a wide array of channels, surf the internet and send e-mail through their TV sets, or order a film.

"The big bonus is that you don't have to pop down to the video shop in the rain," says Lukas Tenosa, one of the first to sign up for the service.

Customers like Lukas Tenosa are enthusiastic about interactive TV

When Kingston announced it was entering into a joint venture with BskyB to promote its interactive operation, investor excitement reached a new pitch.

But it is worth remembering that as yet the service has just a few hundred customers - the stockmarket valuation assumes that it will be a nationwide success.