Not before time, cable consolidation in the UK is about to enter its endgame, with the news that Telewest and ntl are feeling their way towards a merger. It has been a long time coming - the market boiled down from three big players to these two as far back as 1999, with the expectation that a further rationalisation would soon follow.
What followed instead was the bursting of the dotcom bubble, followed by a recession that pushed both companies to the edge. Ntl, for instance, which, like Telewest, is quoted on the US Nasdaq exchange, filed for bankruptcy protection back in 2002 with debts of more than $17 billion. Telewest sought similarly drastic measures to wriggle out from under its own $8 billion mountain of debt.
Also, each company had inherited a patchwork of franchise areas with different evolutionary histories and engineering technologies. Achieving consistency nationwide while striving to upgrade to digital TV delivery and ever-faster broadband internet was no easy matter.
The natural fallout from financial meltdown was management upheaval.
The biggest head to roll was that of the ntl founder and chief executive, Barclay Knapp, in 2003. Ntl's UK managing director, Stephen Carter (now the boss of Ofcom), preceded him through the exit door in late 2002.
So the focus has not exactly been on the big picture. Meanwhile, cable has squandered any technological lead it had over BSkyB, and has been bumped down the pecking order in the digital TV market by Freeview's relatively low-tech digital terrestrial platform.
1. Cable started out (as far back as 1938 in the UK) as a stopgap technology, carrying signals to houses in areas where TV reception via an aerial was problematic. But as demand for channels increased and VHF and UHF transmission technologies reached the limit of their capacity, cable began to be seen as a mainstream platform for multichannel TV.
2. As the internet began to emerge as a mass medium in the mid-90s, cable also began to be seen as the lead "convergence" platform - offering as it does a triple play of lightning-fast broadband delivered over a fibre-optic trunk network plus digital television and telephony.
3. Unfortunately, there has always been a sizeable gap between theory and reality. The first modern high-capacity franchises were awarded (on a piecemeal and seemingly random basis) in the mid-80s. The winners of licences had to start from scratch, digging up the roads to lay cables - thus the early focus of the industry was on engineering and infrastructure. It has proved a difficult heritage to outgrow.
4. Early licence-holders included Croydon Cable, Swindon Cable and Aberdeen Cable. But the locally managed companies were soon joined by international (usually US) telecoms and cable specialists. These included Comcast, International Cable Tel, United Cable TCI/Liberty Media and US West.
5. The industry consolidated at an astonishing rate during a two-year period in the late 90s. In 1997, there were 24 different cable operators. In 1999, when ntl acquired the UK cable assets of Cable & Wireless for £8.2 billion, only two remained.
6. Telewest began life as United Cable, merging in 1989 with United Artists Cable, then into TCI, which merged with US West in 1991. The company was renamed Telewest in 1992. It subsequently acquired General Cable and took control of Cable London. In 2000, it acquired Flextech. It currently has 1.8 million residential customers and had revenues of £1.3 billion in 2004.
7. International CableTel was founded in 1993 by Barclay Knapp. It changed its name to ntl following its acquisition of National Transcommunications Limited in 1996. Since 1998, it has acquired, among others, Diamond Cable Communications, ComTel Limited, Comcast UK, BT Cable Franchises and Cable & Wireless ConsumerCo. It has 3.1 million subscribers and its revenues in 2004 were £2.1 billion.
8. It is believed merger talks are being led on the Telewest side by its chairman, Cob Stenham - though ntl's chief executive, Simon Duffy, is likely to take the same role at the new entity.
WHAT IT MEANS FOR ...
- From a City point of view, the beauty of a merger lies in the cost savings that can be achieved. And because there is no geographical overlap in the services currently offered by the two companies, it should be a simple task to spot which centralised functions can now be rationalised.
- But many customers have been asking themselves why it is they have been sticking with cable. The Sky Digital product has evolved at a greater pace, and for broadband, the product you can receive on conventional phone lines (using DSL switching technologies) has just about stayed in touch with cable performance.
- From a customer viewpoint, the issue isn't how much can be trimmed from the bottom line. It is all about whether the merged company can complete its evolution from a utilities-infrastructure-engineering outfit to a business that excels in delivering a 21st-Century media service.
- Cable is no longer a serious threat to Sky's long-term dominance of the digital television market. Like Sky, cable has an interest in channel management and content development. But Flextech can't compete with the sorts of killer content - sport and movies - that Sky has used over the years to drive its business.
- Cable has failed to keep up with Sky's latest product - the Sky+ box. There has been talk of a cable decoder incorporating a hard-drive VCR for months now - but, so far, no action.
- And with everyone in the City talking about savings, will the company have the nerve to come up with the funding? Or a coherent marketing strategy if it does?