Ending months of battles and speculation, Cable & Wireless Communications PLC's cable operations will go to NTL Corp., thanks to financial backing from France Telecom SA.
CWC has accepted NTL's offer to purchase CWC's domestic cable networks. The deal, when completed, will create the largest cable company in the U.K. and will position NTL to compete with British Telecommunications PLC in delivering both local telephone service and broadband Internet access to the consumer market in the U.K. The combined company will provide telephony and cable TV to 2.8 million customers in the U.K. and Ireland.
In order for NTL to afford the approximately 6.3 billion pounds (US$9.9 billion) price tag, it took a US$5.5 billion investment from France Telecom, which makes the French carrier NTL's largest shareholder with a 25 percent stake. France Telecom last week invested 1 billion pounds in NTL [See "France Telecom to Buy US$1 Billion NTL Stake," July 15], and announced an additional $4.5 billion investment today. Cable & Wireless PLC, the parent company that today owns 53 percent of CWC, and France Telecom both issued statements today with the details of the arrangement.
The deal gives NTL the consumer cable telephone, Internet and television operations of Cable & Wireless Communications PLC for 54.4 million new shares of NTL common stock and 2.85 billion pounds in cash. NTL will also assume about 1.9 billion pounds of CWC debt.
The move has been described by analysts as the first necessary step to combine all the major cable operators into one company in order to more effectively compete with BT. "It's very significant. It's a pretty inevitable, but necessary step for the cable operators. It allows the new cable operator to launch a credible challenge to BT's dominance of the residential telephony market," said Hamish MacKenzie, U.K. telecom analyst at International Data Corp. (IDC).
The other major cable carrier, Telewest Communications PLC, was bidding for CWC's cable network too. MacKenzie and others think that NTL and Telewest will eventually combine, most likely with NTL buying Telewest.
Not only will the deal result in competition and price pressure for BT's telephony services, but will speed up the delivery of long-awaited broadband services for consumers, said MacKenzie. BT has so far failed to roll out its ADSL (asymmetric digital subscriber line) service. With the cable operators promising broadband rollout soon, however, BT will face time and price pressure to roll out its services earlier and at a low price, said MacKenzie.
The combined network will pass by about 12 million homes in the U.K. and Ireland, and will cover parts U.K. cities of Manchester, Leeds, Glasgow, Cardiff, Belfast and most of metropolitan London, said France Telecom.
The deal must still be approved by the board of Bell Atlantic Corp., which owns 18.5 percent of CWC, and is subject to antitrust scrutiny. Completion of the deal also requires a complete restructuring of CWC, breaking off the cable networks from its other businesses. Cable & Wireless will then purchase the data assets of CWC.