Digital, Interactive and Web TV, Players
Service (Delivery) Providers

Cable

[NTL] [Cable & Wireless] [Telewest] [BT] [Video Networks]

Cable companies are already licensed to deliver via cable in specific towns and cities. They will be offering digital services in 2000. Over the last 5 years the cable industry has consolidated from 24 companies to just 2 major players with a few remaining minor players. The major players are NTL and Telewest, now the smallest of the two. They have a joint web site. Many in the industry believe that a merger of NTL and Telewest is inevitable and in fact highly desirable if cable is to be a viable alternative to BSkyB's satellite service.

BT also has 2 cable franchises. Further consolidation is expected. Over the last 20 years, the cable companies have invested between them about £12bn to connect 4.5m homes and further investments in digital transmission is resulting in financial losses.

NTL

NTL is the UK's largest cable company. It's major investors are France Telecom (28%) and Cable and Wireless (11%). Microsoft owns 3%. In the UK it has 3m cable subscribers of whom 1m are digital (mid 2001 figures) plus another 5m customers in Europe. It also owns the transmission network for broadcasting the signals of the commercial TV companies ITV, Channel 4 and Channel 5. Besides television it also provides telephony and internet services to residential and commercial customers. It has stakes in many UK football clubs. It is headed by an American Barclay Knapp and the company is quoted on Nasdaq.

It started in 1993 as Cabletel, a company established by the US Cellular Communications Inc (CCI). It bagan by acquiring Insight Communications with a subscriber base of almost 1m. Later in 1993 a public offering raised $435m for fibre network expansion and the bidding of franchises. In 1996 Cabletel acquired the national TV transmission service of the independent (commercial) TV broadcaster IBA. This gave it a national optical fibre network and over 1,500 transmission masts. In 1997 the company was renamed to NTL. In 1998 NTL acquired Comtel, Comcast, and Diamond Cable Communications for a combined total of $1.8bn with 1.4m homes connected.

Since 1998 the company has been acquiring stakes or making alliances with a number of football clubs and then in 2000 made a winning bid to show the Premier League football highlights for 3 years. See Content Providers, Commerical Broadcasters

Early in 1999, NTL formed a strategic alliance with Microsoft, who invested $500m, to develop high speed voice, data and video services. In March 1999 NTL claimed to be the first to market with its iTV service. This was achieved by working with partners who already had internet sites. By using HTML and Javascript based standards and by reworking the front end presentation, but using established back-end databases, it was able to get the service up and running quickly. The alliance payed off when in May 2000 NTL secured the pay-per-view broadcasting rights for the Premier League football. It will set up a new channel run by subsidiary company Premium Television to show the 40 pay-per-view matches. However, the economics didn't stack up and October 2000 NTL withdrew its bid.

NTL has an impressive 46% penetration rate and is due to launch its digital services in October 1999. In July 1999 NTL became the number 1 cable company in the UK when it acquired Cable and Wireless Communications from C&W for £8.2bn. France Telecom provided $5.5bn in return for a 25% stake. The combined total customers (analogue and digital) are over 3m and their cables will pass 12m homes, 50% of all UK households. The merger with NTL is expected to take 2 years to implement. Initially subject to a UK government competition enquiry (see controversy), approval was given in March 2000. It also participated in the bidding for one of the new mobile phone licences.

In January 2001, as the market started to mature and also in response to BSkyB's price increases, NTL also increased its prices. An entry level digital package of television and telephony is set to rise from £11.99 to £14.99 per month.

NTL also own Atlantic Cable and it has a 49% stake in the ISP Virgin Net. NTL also runs a long distance telephone service for businesses, has a stake in some digital television channels, and has also invested in the national digital radio consortium. Outside the UK, NTL is acquiring cable companies throughout Europe, such Irelands Cablelink and the largest Swiss cable company Cablecom for $3.7bn in December 1999. In March 1999 NTL acquired a 33% share in the National Transmission Network in Australia. It also has a 25% stake in the Swedish cable network B2, and in France owns 1G and Noos (25%) cable networks.

The acquisition pace has accellerated as the UK cable companies go through their final phase of consolidation. NTL has acquired 11 companies in the 18 months to the end of 2000 and is now embarking on a rationalisation programme. NTL's subscriber base then reached about 3m, of whom 500,000 were on digital services.

In 2000 the company had a $1.7bn turnover, a market capitalisation of $30bn, and debts of $13bn (over £9m). It is listed on Nasdaq. Profitablity is forecast for 2005. In January 2001, NTL outsourced its technology requirements to IBM in an 7 year contract with the aim of saving £300m per annum. Other cost savings continued through to 2001. In May 2001, redundancies of 1,300 jobs of the total work force of 22,000 were announced. The plan is to save £200m over 2 years. Many jobs were eliminated in the interactive TV unit.

Cable Modems for SMEs

In February 2001 the company announced a £5m advertising campaign to promote its broadband internet service that had already 20,000 customers. The company was worried that negative press surrounding BT's broadband service may have a knock-on effect. Also, market research indicates that many consumers don't understand what broadband is, let alone the benefits. The aim is to reach 100,000 cable modems by the year end. For £25 a month NTL will provide a 512K link. In May an SME service was announced. The company would target 1.2m small businesses (SMEs) offering them cable modems or DSL lines if they were outside its cable areas. DSL would require co-operation from BT but BT has been extremely slow and awkward in opening up its network. Cable modem customers will pay £90 per month for 512kps and £125 for 1 mbps. Installation would be £220 with Cisco's providing the router which would support up to 4 PCs..

Debts still rising

In May 2001, first quarter 2001 financial results showed an improvement in turnover, growing 6% to £622m, but this put strains on cash flow. The company needed seek additional funding by means of a £350m bond. Digital subscribers rose to 757,000 and cable modem users to 26,300.

The company confirmed it was in talks with AOL-Time Warner. A likely tie-up would provide AOL-Time Warner with access to NTL's broadband customers in return for the provision of content from AOL-Time Warner extensive media interests.

As at July 2001, NTL has 2.87m UK subscribers with 1m of these digital. See UK Customers Base. Debt stands at £16bn (also reported as $21bn), interest payments are £1.2bn, and shares at one point reached $5.06 with the value of equity just $1.4bn (£1bn) from a high of $30bn. Its bonds trade at 50% of face value. There is sufficient cash for another 18-24 months. The company insisted it will be profitable by the end of 2003 but will need to borrow a further £1.8bn to fund the cash flow. In the second quarter just completed, earnings before interest, tax, depreciation and amortisation (ebitda) rose 34% to £115m. It announced a further 5,000 job cuts over 2 years down to a target 14,500. Capital spending is forecast to fall from £1.9bn last year to £0.9bn in 2003. It will spend £500m together with its rival Telewest on an advertising campaign to promote the industry including broadband and their joint movie channel Front Row.

Cable and Wireless (now part of NTL)

Cable and Wireless is now part of NTL after a £8.2bn take-over. It has a digital service to 106,000 digital customers in the Manchester area (January 2000). It provides a 'wall garden' internet access, home shopping, near video on demand, and email services. E-commerce partners include Barclays Bank, British Airways, Littlewoods/Granada Home Shopping. ITN and Associated News. A new call centre is planned to handle customer service. Prior to the NTL takeover it was planned to roll out the pilot nation wide. C&W had spent £13m acquiring a 50.1% stake in Two Way TV, a company based in London. Two Way TV allows subscribers to participate live in TV quizes (see planned services). The fate of Two Way TV post the NTL merger is unknown.

In January 2001, C&W sold 8 million shares in NTL for £183m, reducing its stake to 13%. It still holds 36.4m shares.

Telewest

Telewest is the smaller of the 2 major operators and is currently part owned by Microsoft (24%) and the Dutch company UPC (25%). It is headed by Adam Singer.

It was originally owned by the US companies MediaOne (30%), Liberty International (25%) and Tele-Communications Inc. (TCI). Liberty was owned by AT&T who also acquired TCI in early 1999 for £29bn. Telewest received a boost in May 99 when Microsoft took a 29.9% stake by acquiring MediaOne for $3bn (although it was 15 months later in July 2000 that the European Commission gave approval only when Microsoft agreed to limit its investment to a minority stake and to forego joint management control. The EC was concerned that Microsoft would dictate that Telewest should use Microsoft's software in its set-top boxes).

Later in September 1999, Telewest acquired NTL's stake in Cable London for £428m. Cable London has 445,000 customers in North London. With this latest acquisition Liberty Media took a 21.6% stake in Telewest. Then in December 99 it was confirmed that TeleWest was in discussions with Flextech the owner of many thematic TV channels. Flextech is 37% owned by Liberty Media. Under the deal, Telewest shareholders would have 80% of the new company worth £10bn, sufficient to perhaps challenge BSkyB. It will be headed by Adam Singer, the pop star now media executive. In March 2000 the regulartory authorities approved the merger. In June 2000 Liberty Media and UnitedGlobalCom (UGC) merged, creating one of the largest cable companies outside the US. UGC owns the Dutch company UPC, which then bought Liberty's stake in Telewest. [There was a delay in February 2001 after UPC bondholders made objections].

Telewest has ordered 100,000 set-top boxes from Pace. Telewest has 4m subscribers with a penetration of 32% for telephony and 25% for TV. Up until May 1999 Telewest had invested £3.2bn in its network with annual expenditure of £400m. Pre-tax losses were running at over £464m p.a. in March 2000 when it was worth £6m on the stock market.

Internet Access

The company also provides telephony services and internet services. In late 1999 Telewest was planning to launch a high speed Internet service in conjunction with Microsoft and HP, accessible via TVs or PCs. In December 99 Telewest launched an unmetered internet access for £10 per month. At one point it proposed investing £1bn to offer high speed DSL services via BT exchanges outside Telewest's franchise areas. However, BT was far from willing to co-operate and in December 2000 the company abandoned the idea. Cable customers will however be able to subscribe to a high speed digital connection called BlueYonder for £33 per month offering up to 512kbps. In January 2001 it was reported that Telewest was considering buying the loss making telecoms operator Thus that is controlled by Scottish Power. Thus owns Demon Internet, one of the UK's major ISPs.

In early 2001, Telewest and Sony signed a deal whereby PlayStation 2 users can use Telewest's broadband service to play mulit-player games. Technical trials are to start at the end of the year with consumer trials in early 2002. Sony has also signed a deal with AOL, the owners of Netscape, to make the browser available on the PlayStation 2. Similarly, Microsoft's XBox is internet enabled.

Interactive Services

Meanwhile Telewest continues to prepare for its March 2000 launch of its interactive TV services. One service on offer will allow customers to talk to agents in call centres and the agents can then navigate internet web pages on the customers TV. This service will use iSeeTV software from Media Logic. First Choice, the UK's second-largest holiday operator will be using the service. In October 2000 Telewest announced a new company SmashedAtom, a joint venture with Atomic Tangerine to develop interactive services.

Content

Telewest also sees itself as a major content provider. In May 2000 it was rumoured to be interested in acquiring 2 well know women's magazines from the publishers IPC at a price tag of up to £1.5bn (yes billion!). Other groups including Bertelsmann of Germany were also said to be interested in the titles. These ambitions will require capital, something Telewest does not have. So it was no surprise that later in the year Telewest said they would be looking to external companies like the Hollywood studios to take the risk and handle the marketing of content in return for a reasonable return on capital for using the network.

Debts Continue to Increase

Telewest announced a £530m loss for 1999 on a turnover of £793m. Whilst the heavy cable laying expenditure is coming to a close, profitability is still some way off.

In the first 6 months of 2000, turnover was up to £513m but so too were the loses, up to £296m and the debts mounted to £4bn. Churn rate is 26%. Profitability is not expected until 2007. Its target of 500,000 digital subscribers was put back to April 2001.

In 2000 the consolidation of the UK's cable network was entering its final phase with NTL and Telewest acquiring the remaining smaller companies. In November Telewest acquired Eurobell from Deutsche Telekom for £200m. Eurobell has 171,000 residential subscribers in parts of south east and south west England. The company also acquired the other 50% of Cable London. Telewest's digital TV subscriber base reached 378,000.

In March 2001, Telewest reported even more pre-tax losses - £706m c/f $530m the previous year. Debt rose to $4.4bn incurring interest charges of £424m p.a.. The shares continues to fall and by June the company's value was £2.4bn compared to £16bn about 18 months previously. One positive indicator is that the annual profit on digital subscribers is £25 compared to £17 on analogue but churn rate is high at over 25% (c/f less than10% with BSkyB). The estimated 2001 turnover is £1.312bn but pre-tax profits are estimated even lower at -£0.767bn.

As at July 2001, Telewest has 1.3m subscribers with 0.564m of these digital. See UK Customers Base. There are also over 1.5m telephone customers and about 300,000 internet subscribers, 16,500 of these are broadband. Growth had slowed from 10% in the first quarter to just 4% in the second quarter. Debt increased again to £4.8bn but the company said it had £1.5bn of finance in place and was on target to break even in 2004. Some analyst said the finance would only last the company to 2003 when debt would reach £6.5bn. For the first half of the year earnings increased 16% to £142m but net losses increased by £122m to £416m. It now had a total of 1.735m customers. Telewest denied it was talking to NTL about merging though both companies were talking to their common banker JP Morgan Chase about debt restructuring. The company have set up a joint working party to look at joint purchasing.

BT

BT has 2 cable franchises in Westminster, London and in Milton Keynes. The European Commission has instructed BT to sell these franchises if it wishes to participate in Open, the interactive television venture backed by BSkyB and other companies.

Video Networks

Video Networks offers video on demand and interactive television services, such as banking and home shopping. The system is being trialled in west London with plans to go national. It is rumoured to be talking to Carlton and Granada about capital investment.

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External References

Note: This sub-section was originally part of the Player section, where references up to 22 July 2000 will be found.

Baihache, Robert, & Rees, Jon, 2001, NTL and Telewest in debt talks, Sunday Business, 12 August 2001.
Cope, Nigel, 2001, Online gaming is console giant's next battleground, The Independent, 18 May 2001.
Hughes, Chris (ed.), 2000, Investors should stay tuned to Telewest, The Independent, 4 August 2000.
Hawkins, Ross, 2001, NTL's £5m blitz in broadband battle against BT, Sunday Business, 25 February 2001.
McIntosh, Bill, 2001, NTL and 3com add to tech sector's pain with more job cuts, The Independent, 8 May 2001.
McIntosh, Bill, 2001, NTL shares slide as it launches £350m bond to shore up finances, The Independent, 9 May 2001.
McIntosh, Bill, 2001, SMEs targeted by NTL's broadband package, The Independent, 17 May 2001.
McIntosh, Bill, 2001, Debt stretches cable firms to breaking point, The Independent, 17 July 2001.
Shah, Saeed, 2000, Shake-up at NTL to cost 1,300 jobs in UK [plus news on Telewest acquiring Eurobell], The Independent, 3 November 2000
Shah, Saeed, 2001, NTL insists it will be profitable by the end of 2003, The Independent, 27 July 2001.
Shah, Saeed, 2001, Telewest insists it will break even by 2004 despite $4.8bn debt pile, The Independent, 3 August 2001.
Thackray, Rachelle, 2000, Telewest drops £1bn plan to supply Net services through BT exchanges, The Independent, 11 December 2000
Vaughan, Liz, 2001, NTL to phase in price rises for digital TV packages, The Independent, 11 January 2001.
Vaughan-Adams, Liz, 2001, Telewest deal with Dutch rival rejected, The Independent, 21 February 2001.
Vaughan-Adams, Liz, 2001, NTL in preliminary talks with American media giant over cable content alliance, The Independent, 1 May 2001.
Wachman, Richard, 2001, Telewest tunes in to Thus merger prospect, Sunday Business, 7 January 2001.
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