Cablelink sale

In keeping with it's commitments to opening the telecommunications and broadcast markets to full competition in line with European directives the government has ordered that Cablelink be sold off before the end of the year. Cablelink is currently jointly owned by Telecom Eireann and RTE, both of which are semi-state bodies and are suffering under the loss of the their monopoly position in the telecommunications and broadcast markets respectively.

Economist Moore McDowell, adviser to the telecommunications regulator, Etain Doyle, has advocated that cablelink be split into several companies before it is privatised at a Dublin conference held by Competitive press. Based on the premise that if the government was setting up a cable broadcast service from scratch it would give licenses to several companies and not set up a monopoly run by one company. This would give further competition and greater value to consumers. There is the question selling off Cablelinks other cable and MMDS interests separately. He believes a study should be carried out to see how many operators the market could support and allow open competition and not just grant areas of transmission, which then could not survive in the open market.

If the telecommunications regulator allows Cablelink to compete with MMDS she would have to deal with the thorny issue of allowing MMDS a level playing field (for the technical and legally minded it is called 'the universal service requirement' in the original license). This means shutting down cheap, popular, if inferior quality and illegal deflector systems in rural Ireland this has been the stumbling block which has already put Tony O'Reilly and the politicians on a collision course which neither has come out of looking good (or honest). The public even went as far as voting in a candidate on the issue, standing on a pro-deflector ticket. (see related articles). In any case the MMDS system of transmission is being undermined by the advent of digital terrestrial television which will become operational in the near future allowing huge increase in the number of channels and will be able to broadcast to rural areas. This will create a completely new alternative to either system. This is yet again more bad news for Tony O'Reilly and Independent Newspapers who have invested heavily in MMDS, still haven't got a level playing field and are embroiled in a bribery scandal.

Another problem is striking a balance between getting the best price and still satisfying the needs of open competition. Selling Cablelink as a unit will receive the best price because it would be protected to some degree from competition, but would affect Telecom which would benefit from a more open market place. In related news which may show something of how the industry will develop in Ireland, a competitive open market in the cable industry has not been friendly to British investors in recent years. Firstly British consumers were not taking up cable with the enthusiasm expected. With four terrestrial channels in operation, most people didn't feel the need for cable, and satellite appeared a better option, as BskyB was the main package of interest to the public (As opposed to Ireland where the package included both the British terrestrial channels and BskyB). Secondly the cable companies talent for marketing was worse than useless and made no impression.

But suddenly there has been a remarkable renewed interest in the stock. Telewest one of the worst performers in living up to expectations has suddenly taken off. In April, just before it announced plans to merge with General Cable, its' shares were trading at 88p. They are now trading at 190p finally above their 1994 issue price. General Cable has a similar rise in fortune from 160p up to nearly 300p a share. The reason for this change would seem to be AT&T's planned takeover of Telecommunications Inc. (TCI), one of Telewests' main shareholders. This would place it in a position to move further into the cable market and exploit the technology and support of AT&T to develop digital terrestrial infrastructure and other areas of communications, which has excited the market.

Possibly a taste of things to come provided the companies can rise to the challange and prepare now for what is, without a doubt, the next stage of development. ¥

Michael Mc Mahon 15/7/98