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France Telecom puts $1 billion into UK cable market

by Andrew Craig, VNU Newswire

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France Telecom has agreed to invest $1 billion in UK cable operator NTL in a deal intended to fund the company's acquisition of Cable & Wireless Communications.

France Telecom said in a statement late today it will take a 10 per cent stake in NTL through an initial equity investment of $1 billion. The French giant also said it would increase its stake if NTL's acquires CWC's consumer business.

NTL confirmed earlier reports that it is in discussions with CWC to buy its consumer division. Parent company Cable & Wireless announced its plans to move away from consumer markets towards business customers earlier this year.

Prospects for a three way merger between CWC, NTL and Telewest appear to be still alive. Telewest has been in merger talks with CWC for several months - tonight it said those discussions were still ongoing.

"As far as I know, those discussions continue," said a Telewest spokesman.

NTL said the acquisition of CWC would double its size to cover a total of 11.5 million homes in its franchise areas, representing 50 per cent of the UK. The combined operator would have 2.3 million telephony subscribers and 2.15 million cable TV subscribers.

France Telecom's purchase includes $250 million in common stock at $92.50 per share and $750 million in five per cent preferred stock, convertible into common stock at $125 per share.

Microsoft already owns five per cent of NTL and 29.9 per cent of the other big UK cable operator Telewest.

Cable networks pass around 25 per cent of UK homes, while BT's copper network passes virtually all homes. Analysts said earlier today that a consolidated cable operator could threaten BT in the consumer market, but the threat in the business market is much smaller.

A combined cable operator, "will be able to be competitive in the residential sector, but not so competitive in the business sector," said Robin Duke-Woolley, senior analyst at Schema.

BT is developing multimedia applications to stream over its network once it introduces broadband ADSL technology, due sometime during the next 12 months. NTL will have a big advantage in the interactive content field, according to Duke-Woolley.

"NTL understands entertainment. BT has now got quite a lot of people that understand the TV business, but as an organisation it's not an entertainment leader, so it's bound to find it more difficult," he said.

Meanwhile in the business sector, the cable operators' offerings have been quite limited to date - in part because they are restricted to their franchise areas. Consolidation could help them increase their business customer base because they'd be able to offer nationwide services for business.

BT earlier refused to speculate on how it would react to cable consolidation. Telecoms watchdog Oftel earlier said it would examine the competitive impact of any new entrant, but would not comment specifically on today's news.

"If it was a situation where it was obvious that a monopoly was going to be created and smaller players were going to be excluded, then that's something we'd have to look at," said an Oftel spokeswoman.

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