NTL and Telewest plan to increase their levels of co-operation.
The UK’s two largest cable operators, NTL and Telewest, have announced that they will deepen their alliance. They already have a jointly owned film service Front Row, as well as merging their advertising and sales operations in May, and launching their joint Broadband Britain marketing campaign last month.
So it’s hardly shocking news. As Telewest’s MD Philip Jansen said, Everybody understands the rationale for the merger of these two businesses. NTL and Telewest together control the entire UK cable industry, with no geographical overlap between their operations. A merger would bring major economies of scale both in reducing costs and in building customer base.
The companies’ complicated debt and equity structures make a merger unviable for now. But this alliance should let them reap many of the benefits of a merger. They will make major savings from joint procurement – at present, NTL and Telewest spend GBP300 million on set-top boxes, which they buy from the same suppliers, Pace and Scientific Atlanta.
They also plan to reduce churn rates, by allowing customers moving house from one company’s area to the other’s to take up an identical package in their new house at a discount, rather than lose them to BSkyB or ITV Digital. And they will close their high street stores, probably building a joint sales presence within a national retailer.
Cable is finally coming of age in the UK. NTL is on course to become the second-largest digital TV operator this year, with nearly as many subscribers as ITV and faster customer growth. Fragmented marketing has been one of the major factors holding cable back, so any efforts to improve it are welcome. And both companies’ long-suffering shareholders will be pleased with the cost savings.
Admittedly, cable is still far, far behind BSkyB in pay-TV, and the cable companies’ mooted advantage of offering video-on-demand over broadband is looking difficult due to bandwidth difficulties. NTL and Telewest still have over $20 billion in total debt. But things are looking up.
