Thursday, January 20, 2005

Dutch telco meltdown, revisited

The preceding post elicited a response from a Dutch reader, who points out that the Nuenen project achieved 97% buy-in in the project area, with no response from local incumbent UPC. Maybe cable paranoia is a company specific phenomenon.

Update: today's Financial Times interview with John Malone seems to express concern that the UK market may see a fiber deployment, but there is no mention of fiber in the Dutch market, perhaps because the latter is municipality-driven.

FT: And what about the UK? Last time we spoke, John, you mentioned that you were unlikely to look at the UK until you had a clear idea of what BT’s intentions were. Has that changed?

JM: Well I think you have to remember the context. Rupert [Murdoch] with Sky has such a strong position in video content. Any cable operation was dead on video margin, so they had to look to telephony and data to justify capital spending and the operating costs of the business.

NTL and Telewest succeeded in making a profit in data and telephony but would they ever wake up and re-enter the fray in the video area? Local telecoms can spend large amounts of capital on challenging them. Look at Verizon in the US laying fibre to the home. If BT were to do the same, and given that cable has no leverage on video because of the strength of Sky, you'd be more nervous about the UK than the markets in which UGC operates.

Where you have real use of triple play cable is terrific. But where you're denied one of those assets for structural reasons or because control lies with someone else then you face a problem.

FT: Given all of that do you think a merger of NTL and Telewest is inevitable, and would that be an attractive proposition for Liberty?

JM: I think the prospect of that merger is very large, if only to take BT on on country wide basis. The scale economics are clear in telecom but they still have an issue on the video business. We sold our interest in Telewest because it wasn't’ a big enough position to be strategic and we were concerned that cable companies could die against telecom rivals, especially if they didn’t have a profitable video business. We have to see how things evolve. If BT stays asleep theoretically cable could be a very profitable business.

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