For a telecomms company that hit the headlines, just over a year ago, with a very public boardroom battle, and saw its merger talks with BT collapse, Cable & Wireless (C&W) has bounced back to become a very eligible partner.
Last week it was reported to be mounting a takeover bid for Sprint, the US number three carrier and third member of the Global One European alliance, while Deutsche Telekom - also a Global One member alongside France Telecom - is understood to be eyeing a stake in Cable & Wireless Communications (C&WC), the giant's UK cable arm.
On top of this, C&W has its hands full with preparations for a spring flotation, and is negotiating with Beijing officials over the future ownership of one of its main breadwinners, Hong Kong Telecom.
Even if none of the rumoured deals happen, C&W is in a far stronger position than it was a year ago.
On the European front, the company pulled out of its proposed joint venture with Veba of Germany, gained an extra #199 million by selling its stake in another German telecomms group, Mannesmann Mobilfunk, and reduced its shares in Sweden?s Net Com Systems.
Analysts believe the withdrawal from ventures with Deutsche Telekom rivals in Germany is to make it a more attractive potential partner in Global One, particularly to the German giant, which is keen to challenge BT on its home territory - possibly through a stake in C&WC, which would give it access to the business customers of C&WC subsidiary, Mercury Communications.
In the Far East, C&W's majority stake in Hong Kong Telecom gives it an enviable hub in the Asia-Pacific region, where most European telcos are weak, although this faces political uncertainty and growing competition from other Asian operators such as Singapore Telecom, according to a recent examination of global alliance by industry consultancy Analysys. Also, the Chinese government is reported to have told C&W that it must give up 20 per cent of its 57.5 per cent share in Hong Kong Telecom before it is permitted to operate in mainland China. However, the opportunity to enter that lucrative market is far more immediate for C&W than for its rivals.
At home, it was the establishment of C&WC - the alliance between the cable affiliates of C&W, Nynex and Bell Canada, that put the company firmly back in the UK market and breathed vitality into its subsidiary, Mercury Communications. Despite being the first competitor to BT in the early 1980s, Mercury has found it hard to compete on equal footing and has retreated into targeting business users only. According to independent figures, Mercury owns barely 10 per cent of the UK market.
The formation of C&WC downplays the fundamental weakness of Mercury and creates a strong platform from which to move into the lucrative interactive and multimedia markets - areas that require much investment and time before rewards are reaped. However, Nynex and Bell Canada are believed to be seeking to drop out of the UK telecomms markets. ?The investment in the UK cable TV market has been disappointing for US companies - they?re not getting the right returns,? said Barry McAdam, an independent international telecomms market analyst. This has prompted speculation that Deutsche Telekom and France Telecom will buy those two companies' stakes in C&WC, even though that would create a cable operation without a significant cable supplier in its ranks.
But the backing of the two European telcos could give Mercury a second chance in the business it was set up to do - to beat BT as a UK-based national and international telecomms operator. Said McAdam, ?BT?s strategy in France and Germany is to be the second telco. If France Telecom and Deutsche Telekom want to repay BT in this survival game then a stake in C&WC is the only option.?
The C&W man at the negotiating table is Richard Brown, who took the chief executive position last May, six months after the public sackings of executive chairman Lord Young and chief executive James Ross over "irreconcilable differences". In June, one-time non-executive director Brian Smith, who was brought in as chairman at short notice, told C&W shareholders: "The differences that led to November?s departure were matters of personality, not policy. The board took firm control... business continued as usual and the spat at the top made no difference, strategically or operationally. Lord Young and James Ross were two talented individuals whose only crime was not to get on.?
According to the Analysys global alliance report: ?Under Lord Young, C&W had followed a somewhat diffuse geographical expansion from its historical British Commonwealth base, at the expense of building scale and depth in major markets. The company was thus left relatively weak in much of Europe and particularly the US, over-dependent on its Hong Kong business, and without significant global alliances.?
McAdam believes the boardroom reshuffle and the installation of Brown, who has held senior positions at Sprint and Illinois Bell, has done C&W the world of good. ?C&W is more realistic now. Brown is trying to sort this out now and he seems to be effective at doing this. He is reorganising the company in the way financial managers would approach problems rather than as a strategic visionary which the two previous executives were.?
Last year C&W missed the boat on several opportunities. Its merger talks with BT exactly a year ago broke down largely because of insuperable regulatory and financial obstacles. It had also been in discussions about joining other global alliances but nothing materialised. Apart from its disappointing performer, Mercury, and a sizable presence in Hong Kong and the Caribbean, C&W did not bring enough to any venture, said McAdam. ?There was never enough there, but Lord Young wanted too much[from potential alliances}. C&W generated revenues and profit with Lord Young but it was in a huge muddle. If it came up on top it was through good luck or fortune. However Brown is more realistic and that is why C&W is more attractive,? said McAdam.
Brown is keen for C&W to be seen as an aggressive player and if the current rumours are to be believed, C&W?s takeover bid for Sprint will be a coup. C&W is looking to acquire the 80 per cent of Sprint that is publicly held. France Telecom and Deutsche Telekom each hold 10 per cent. C&W was believed to have held meetings with France Telecom to shore up support and to be seeking similar talks with Deutsche Telekom. The speculation was vigorously denied by France Telecom and Sprint.
Ovum?s senior telecomms consultant, Josie Sephton, said the move would be an ?audacious? one by C&W because of "the fact that it is not looking to merge but mount a takeover. However this would put it firmly in the US market.? It would also present serious competition to the proposed merger of MCI and BT.
However there are questions over financing. A bid would need to be in the region of $15 billion. The two European telcos paid a combined price of $3.7 billion for their two 10 per cent stake in Sprint. Said Sephton, ?The move will give people a different impression of Cable & Wireless. It wants to be seen as an aggressive player.?
As a formidable player in the telecomms world there are mounds of opportunities for C&W. But if the company follows its historic patterns and misses the boat before competitors are let lose on the European and world stage through complete deregulation, it could be known as a player that could have had it all but failed.
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