NTL considers wholesale

According to reports, the proposal has been put to Internet service providers (ISPs) such as AOL and Freeserve - although NTL would not be drawn on how any negotiations were proceeding. A company spokesperson would only say that 'Introducing wholesale services is one option that we're considering'.

It comes as no surprise that NTL is contemplating these measures. Since the end of 2001 the company has lurched from one crisis to another culminating in its current inglorious position: the company has accumulated €19.2 billion in debt, its share price has plummeted to just above one euro and it has announced that it will need to shed an additional 4,000 jobs before the end of the year.

NTL is in a vicious, ever decreasing circle. Its huge debts have cost it the confidence of the investment community, which has led to a collapse of its share price and the need for it to reign in spending. This has led to a lack of cash to market its services to attract new customers and generate more revenue…which is costing the company the confidence of the investment community.

The company desperately needs to break this circle by restoring confidence in its financial backers. But is allowing access to its network the best way to do it? In the UK, at least, the idea of giving competitors access to a wholly-owned network is something alien to cable operators. The reason is obvious: why let other companies benefit from a network that has cost you millions to develop?

The reason is quite simple. Not only will NTL generate additional revenue from rental charges, it will also be hoping its retail division will benefit from any upsurge in the market brought by an influx of new players. Simply, if familiar ISPs such as Freeserve and AOL are able to offer a variety of exciting packages via NTL's broadband network, residential customers might be more interested in signing up.

According to the research the market for broadband cable is there; the problem remains how to tap it. 'The cable broadband market is going to expand,' says Lars Godell, an analyst with Forrester Research. 'By 2006 we predict 26 per cent of Internet users will have a broadband connection and 30 per cent of those will be using cable, so there is money to be made.'

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Unique

Although NTL is not the only cable operator to have had a difficult time in recent months - reflecting the depressed state of the technology and telecoms markets - it is perhaps unique in the way that it has always placed acquisition above consolidation in its order of priorities. Initially, the company gained a presence in the UK through the acquisition of numerous cable franchises, including Insight Communications, ComTel and Cable and Wireless.

But NTL has always regarded itself as more than just a UK-only operator and has invested widely in European operators and telcos, particularly with the acquisition of SwissCom. It is this strategy that some analysts believe is at the root of its current problems. 'They've made some juicy purchases but they're now paying the price,' says one City analyst, who asked not to be named. 'SwissCom was just too expensive.'

While expansion used to be seen as far-sighted, in the current market, those same companies that once enjoyed the financial communities' - not inconsiderable - largesse, are now making them nervous. 'The cable companies are doing well operationally. On the whole, they're achieving what they set out to, but people want to see profits now. Investors are worried about the amount of debt,' says the analyst. And, although wholesale services will help, they won't be the answer to NTL's woes. 'It'll be a drop in the ocean, but it makes sense from a cash flow point of view.'

Since December last year, attitudes to NTL have hardened with many analysts and commentators believing that the company needs to fundamentally restructure to regain the confidence of the financial markets. 'The share price won't increase until NTL's reputation has improved,' says the same analyst. 'It could sell SwissCom and other assets and that would make a difference.'

But when discussion turns to selling assets, it is usually NTL's broadcasting arm at the top of the list. But this does not appease the money men. 'NTL's broadcasting arm is cash rich, so that wouldn't make much sense, and anyway, who would buy it?' says the analyst.

NTL is in pole position to capitalise on the UK's coming wave of convergent, interactive broadband services. But if it is to do this, it has to undergo a painful period of consolidation, which may mean the sale of some favoured assets. It would emerge leaner and meaner and able to take the fight to the competition. If it fails to do this, however, there is a danger that it will follow other companies that have tried to run before they can walk.

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