At a stroke, last week?s mega-merger of Mercury Communications and three leading cable operators changed the whole face of the UK cable industry. The consolidation forms the only group that is really capable of challenging BT?s dominance - at least as long as Oftel continues to restrict the broadband services BT can offer over its own network. And one thing is clear - this grouping has very little to do with cable television, and everything to do with emerging services for business users.
Cable and Wireless, Mercury?s parent, and its cable partners have agreed this massive deal with huge pound signs in their eyes, and that money has already been proven not to lie in domestic services such as television. Instead, business users should find the promise of wide-ranging and affordable multimedia services over cable will come a huge step closer, and that they will have to consider how these integrate with their existing electronic infrastructures.
The new company, Cable and Wireless Communications, formed from the merger, consists of Mercury plus three UK cable groups with north American parents - Bell Cablemedia, Nynex Cablecomms and Videotron - which between them access 2.8 million homes and aim to have almost a million business links by 2001. It will be floated in London and New York next year.
The emphasis is firmly on business services, in a country where the mainstream cable offerings, television and telephony, have been disappointing so far. The unique selling point of the new group will be its sheer size and the global weight - and deep pockets - of its international parents. For the first time - given that BT?s hands are still tied in the multimedia services market by Oftel - UK business users are seeing a group with the resources to rejuvenate the cable industry, develop new high end services and offer a one-stop shop that integrates telephony, video and Internet based offerings.
The cable industry has long accepted that consolidation was its only chance of hitting the business big time, because of the huge costs of building infrastructure and investing in deals with key content providers - notoriously, in the UK, BSkyB, which controls most of the television programming that interests the UK public at all over cable. Don Cruickshank, director general of telecommunications, recently called on cable operators to cooperate and pool resources if the industry were to be viable.
The number of cable operators has fallen from 36 to 10 with this merger and is likely to be down to three or four by the end of the century, which will hasten the development of services but is likely to push pricing up, especially in the business environment, where traditionally companies charge a premium to compensate for cut-throat domestic rates.
The economies of scale that these super-groups will be able to command should hasten the development of new business services over cable. The executives of the C&W quartet said this was ?one of the critical aspects of the rationale for this deal?. Services particularly stressed were Internet access - particularly with the advent of cable modems - interactive multimedia services such as videoconferencing and distance learning, electronic shopping and financial transactions. BT is also pushing into this arena with its proposed BSkyB tie-up to offer interactive business services using its telephone network and digital satellite.
So it will not be an easy battle for cable, as other technologies start to offer similar ranges of services to business. Success in this area will be critical to justify the multi-billion pound investments the C&W group will make each year. Traditional cable services just aren?t sufficient in the UK market. Television has been a hard nut to crack. Although the new group supplies one-third of the 1.6 million cable TV subscribers in the UK, and has potential access to six million homes in the four urban franchise areas it controls, a spokesperson pointed out that only 22 per cent of homes in cable areas have been persuaded to buy the service. ?We will have the marketing clout to improve that, but we must also look to broader markets,? said the spokesperson.
Telephony has been more successful, with one-third of homes in cabled areas taking this service. However, this is a price war, and the cable companies need to increase the added value services they offer in telecomms, particularly to business, and to change the perception that their services are lower quality than BT?s, if they are to justify the huge investment in infrastructure.
Even better marketing of the TV and telephone offerings - escaping the mindset of utilities that most telephone companies still demonstrate - will not guarantee success against tougher competition than anywhere in the world. In TV this comes from satellite, the quality of the terrestrial channels and, potentially, digital satellite - which will offer hundreds of channels - and video on demand, run over BT telephone lines using ADSL technology.
As for telephony, BT still price cuts aggressively and there is new competition from smaller operators, from Internet telephony and from wireless communications. However, Mercury?s main interest in the cable tie-up is clearly a chance to bite back against its biggest bugbear, levelling the playing field at least by a few degrees. The chance of a viable competitor to BT can only be good news for business - although deregulation has pushed BT into pricing more competitively and introducing new services more rapidly than elsewhere in Europe, techologies such as ISDN that are becoming business staples with the explosion of the Internet and other multimedia applications are still slow and expensive compared to those in the US.
This is a massively political industry, but once the new group floats businesses will see some firm plans for new services. With interactive multimedia applications dominating everybody?s IT plans, the cable factor could at last become an important element of business planning.
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